The battle over who will lead the Federal Reserve for the next four years has heightened concerns about whether the Fed is doing enough to tackle climate change.

While Chair Jerome Powell has broad support from Republicans and many Democrats for his handling of monetary policy and response to the pandemic, his left-wing detractors have criticised him for, among other things, working too slowly to focus the Fed's attention on climate.

A group of progressive Democrats, including New York Representative Alexandria Ocasio-Cortez, recently urged President Joe Biden to fire Powell and replace him with a more environmentally friendly nominee when his four-year term expires in February. Climate activists responded with a petition signed by over 40,000 people pushing Biden to do the same.

This isn't the first time that filling the Fed chair has sparked a fight inside the party that controls the White House, but climate policy has never played a big role in any Fed appointment. That is drawing attention to a wider debate over whether the central bank has the tools, the authority or the appetite to play a leading role in battling global warming and its potential economic fallout.

“This is not what we should be talking about in the discussion over the Fed chair,” said Claudia Sahm, a former Fed economist who is a senior fellow at the Jain Family Institute. “It’s nonsense to say the most important institution in fighting climate change is the Fed.”

Alexandria Ocasio-Cortez $7,000 in savings only amplifies her power — Quartz
New York Representative - Alexandria Ocasio-Cortez

Fed Wades In

Progressives, including Ocasio-Cortez, believe that the Fed is only one of the organisations that should be concerned about climate change, not least because the Fed's mission involves maintaining financial market stability, which climate change threatens.

The Fed has already entered the climate change discussion, but it has done so cautiously, waiting until after Biden's election to take a number of critical initiatives.

After years of lagging behind other central banks, the Fed has increased its climate change research and is actively addressing the threats that a warming planet poses to financial stability. Bank officials formed a climate committee last year, joined a crucial worldwide organisation of central banks on the issue, and began working with the Treasury Department on Biden's climate executive order.