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Lael Brainard on climate change

From Reuters* (Biden to name Fed’s Lael Brainard as top economic adviser): 

U.S. President Joe Biden is expected to name Federal Reserve Vice Chair Lael Brainard to the White House’s top economic policy position as early as Tuesday, a source familiar with the matter said on Monday. …

Markets’ response was muted in Asia hours, with bonds and the dollar steady along with U.S. futures, and analysts said the implications of the appointment weren’t very clear.

“We don’t know what to infer from this,” said Vishnu Varathan, head of economics at Mizuho Bank in Singapore.

“Under normal circumstances I would have thought that her advice to Biden would be very pro stimulus,” he said.

First, ignoring the fact that that last quote might be flippant or taken out of context, under normal circumstances an economy doesn’t need stimulus, right? An economy might need stimulus during a recession, but that is an abnormal situation. 

Second, my first question was — what about climate change? So I Googled. Here she is discussing climate change in an speech at the October 2021 Federal Reserve Stress Testing Research Conference titled “Building Climate Scenario Analysis on the Foundations of Economic Research“: 

Economic analysis suggests that climate change could have profound consequences for the level, trend growth, and variability of economic activity over time and across regions and sectors. Some of these effects could occur gradually, while others could occur relatively quickly in the presence of “tipping points.” Policy, technology, and behavioral responses could similarly have material financial consequences. Against this backdrop, the Federal Reserve is carefully considering the potential implications of climate-related risks for financial institutions and the financial system, with scenario analysis emerging as a potential key analytical tool for that purpose.

Climate change is projected to have profound effects on the economy and the financial system, and it is already inflicting damage. The Sixth Assessment Report by the Intergovernmental Panel on Climate Change (IPCC) notes that “if global warming increases, some compound extreme events with low likelihood in [the] past and current climate will become more frequent, and there will be a higher likelihood that events with increased intensities, durations and/or spatial extents unprecedented in the observational record will occur.”

We can already see the growing costs associated with the increasing frequency and severity of climate-related events. The total cost of U.S. weather and climate disasters over the last 5 full years exceeds $630 billion, which is a record. During this period, massive flooding in the Midwest has caused billions of dollars in damages to farms, homes, and businesses. The California Department of Insurance has documented growing problems with the availability of fire insurance for homeowners, and the state legislature provided new protections for wildfire survivors. Last year was the sixth consecutive year that the United States experienced ten or more billion-dollar weather and climate disasters.6 And this summer, Hurricane Ida alone is estimated to have caused more than $30 billion in insurance losses.

The pandemic is a stark reminder that extreme events can materialize with little warning and trigger severe financial losses and market disruptions, and the IPCC Sixth Assessment Report is a reminder of the high uncertainty and potential costs associated with climate-related risks. It will be important to systematically assess the resilience of large financial institutions and the broader financial system to climate-related risk scenarios. …

So, no surprise, the National Economic Council will be led by someone who takes climate change seriously. But still, good to know.

*The WSJ article is better but it might cost money.