The risks from climate change pose challenges to large swaths of the country and a wide range of industries, said Mary C. Daly, president and CEO of the Federal Reserve Bank of San Francisco.
"While the severity and scope remain unclear, the consensus is that a changing climate poses a significant risk to the global economy and the financial system," Ms. Daly said in prepared remarks Tuesday during a virtual event hosted by the Peterson Institute for International Economics. "And we know from experience that ignoring these risks or failing to prepare for them will make the transformation more turbulent and the destination less hospitable."
She said extreme weather events have already made an impact on the economy, including making it harder and more expensive to insure real estate in risk-prone areas such as California, Florida, Louisiana and Texas.
But while the challenges climate change has posed and continues to pose are stark, the Fed and all central banks also need to be forward looking, especially with respect to how metrics such as employment and prices could be impacted, Ms. Daly said.
"As monetary policymakers, our job is to navigate this uncertainty," she said. "We need to anticipate the changes before us and understand their implications."
To assess these changes, the San Francisco Fed is working with other public institutions and the private sector to catalog the risks and examine how they are playing out locally, in the nation and worldwide, Ms. Daly said. These data collection efforts include formal surveys, listening sessions and targeted meetings with CEOs to better understand how climate risk affects decision-making and resiliency planning, she added.
The San Francisco Fed is also hosting conferences and sponsoring a virtual seminar series on climate economics. And it has assembled a team to study how these issues are likely to impact the Federal Reserve's mandates in the future, Ms. Daly said.
In March, Lael Brainard, a member of the Federal Reserve's board of governors, announced that the central bank was launching the Financial Stability Climate Committee to identify, assess and address climate-related financial stability risks.
Republicans on Capitol Hill have criticized the Fed in recent months for its work on climate change and racial economic issues, saying the topics are outside of the Fed's mandate.
Regional Fed banks have increasingly been engaged in research on "social policy topics reflective of the political and normative leanings of unelected Federal Reserve Bank officials," said Sen. Pat Toomey, R-Pa., ranking member of the Senate Banking Committee, in a March letter to Ms. Daly. "This approach has inserted the Federal Reserve into the emotionally charged political arena — a place where the Federal Reserve seldom has ventured, and for good reason."