Federal Reserve Warns That Climate Change Could Spur Next Financial Crisis

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San Francisco Fed researcher Glenn Rudebusch suggested that a tax on carbon emissions could address the growing threat.

A researcher at the Federal Reserve Bank of San Francisco has found that the impacts of climate change will touch America’s financial institutions as natural disasters are exacerbated by rising temperatures and sea levels, holding the potential to spark another financial crisis.

Glenn Rudebusch, executive vice president for research at the San Francisco Fed, detailed his findings in a paper published on Monday, Bloomberg News reported.

“Climate-related financial risks could affect the economy through elevated credit spreads, greater precautionary saving, and, in the extreme, a financial crisis,’’ Rudebusch wrote. “There could also be direct effects in the form of larger and more frequent macroeconomic shocks associated with the infrastructure damage, agricultural losses, and commodity price spikes caused by the droughts, floods, and hurricanes amplified by climate change.”

The researcher called upon policy makers to address the concern, noting that the Fed lacks the necessary tools to adequately address the issue itself.

Rudebusch also noted that central banks have begun incorporating the risks associated with climate change in their economic outlooks.

“Many central banks already include climate change in their assessments of future economic and financial risks when setting monetary and financial supervisory policy,” he wrote.

Like former Fed chairmen Alan Greenspan and Paul Volcker, Rudebusch suggested moving to a carbon tax to help transition to cleaner technologies.

Current Fed Chairman Jerome Powell said he would look into how the central bank might evaluate the effect of climate change on the economy, calling it a “fair question” to ask in remarks to lawmakers last month.

Any forward motion on climate change policy likely faces hurdles, as Republicans control both the Senate and the White House, Bloomberg noted, and President Donald Trump has long been skeptical of the idea that global warming is human-caused.

The president has tweeted several times since taking office that cold spells across the U.S. would indicate global warming is not happening, despite the fact that climate and weather are not one and the same.

Democrats, on the other hand, have vowed to take up climate change legislation after taking control of the House this year.

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