It’s no secret that the Fed is having a hard time controlling inflation. While it is failing at its primary duty, the Democrats are busy crafting executive orders, passing bills and proposing new legislation that will expand the list of goals the Fed must prioritize.
As it stumbles to meet its current mandates to maintain price stability, maximum employment and financial stability, Congress and the administration are asking it to also control greenhouse gas emissions, promote equal employment, income, wealth and affordable credit outcomes across racial and ethnic groups, and proposing that the Fed be required to issue a new central bank digital currency. This insanity must stop. The Fed already has too many conflicting mandates without adding new highly politicized ones. The Fed should focus on price stability.
In October 2021, dutifully complying with a May executive order, the Financial Stability Oversight Council (FSOC) issued a report claiming that climate change poses a systemic risk to the financial system. To counteract this risk, the FSOC proposed that its members, including the Federal Reserve System, “incorporate climate-related financial risk into their regulatory and supervisory activities.” The FSOC’s primary regulatory tool for accomplishing this is a, “scenario analysis conducted by regulators to measure risk across a broad set of institutions.”
Scenario analysis is a purely hypothetical modeling exercise where institutions have to simulate their profits and losses assuming some calamitous event occurs in the future. Financial regulators would specify the fictitious calamitous event as they do today in the stress test exercises the Fed imposes annually on large bank holding companies…