Yesterday, Federal Reserve Chairman Jerome Powell walked a political tightrope between Democratic demands for faster climate action from the Fed and Republican instructions to do the opposite.

As a solution, he motioned to both.

Powell during his central bank appointment hearing under President Biden argued that the Fed has a limited, but important, role in the fight against climate change.

“We have a role to play. It is a narrow question, but an important one. And it relates to our existing mandates. We don’t have a new mandate on climate change, ”Powell told the Senate Committee on Banking, Housing and Urban Affairs.

Biden announced in November that he would reappoint Powell for a second term as Fed chairman, following his first appointment under former President Trump. Biden highlighted Powell’s continued leadership during the pandemic and his attention to other issues, including global warming.

Powell’s performance throughout the health crisis is a determining factor in bipartisan support for his appointment. In 2018, Powell was confirmed by an overwhelming margin: 84-13.

“There is broad bipartisan support for President Powell’s re-appointment because he is used to acting thoughtfully and constructively, especially under difficult circumstances,” Sen. Pat Toomey of Pennsylvania said yesterday on top Republican on the panel.

Praise aside, Powell faced a difficult hearing in part because of the economic turmoil that ravaged his tenure atop the world’s most powerful central bank. Lawmakers on both sides of the aisle have drilled into him on issues such as record inflation, employment rates, supply chain issues and an ongoing scandal over the business activities of several officials in the Fed.

At least seven lawmakers have asked Powell about rising temperatures, an issue that puts the Fed, which is supposed to be an independent agency, in the midst of an intense political battle.

While Democrats say the central bank has a responsibility to assess and mitigate climate-related risks, Republicans argue that a foray into social or environmental issues is inherently political. They also claim that devoting time and resources to global warming is not appropriate given that the Fed’s main responsibilities are to achieve price stability and maximum jobs.

“What worries me the most with the Fed, and you and I have discussed this previously, is the drift of the mission which, I think, both complicates and frankly complicates this main mission of price stability”, said Sen. Kevin Cramer (RN.D.).

Powell agreed – in part.

He said the Fed had to “stick to our knitwear if we are to remain independent”, and noted that “the broader response to climate change must come from lawmakers and the private sector”.

But he added that the Fed also has financial stability responsibilities and that it is appropriate for the central bank to address climate change “as it fits within our existing mandates.” I think it’s along the lines of [that] this is another risk, over time, that the banks will run.

This feeling is not that different from what Powell said over two years ago. In a 2019 hearing before the same committee, he said that although climate change is important, the Fed “will not be the one who decides on the company’s response,” Bloomberg reported at the time.

Meanwhile, Democrats including Sen. Elizabeth Warren of Massachusetts, Jon Tester of Montana and Chris Van Hollen of Maryland have argued that the Fed has a responsibility to more actively fight rising temperatures. Warren is among the progressive lawmakers who have long viewed Powell as a climate laggard – and even said she would not back her re-appointment because of actions that she says “make our banking system less secure.”

Senator Sherrod Brown (D-Ohio), who chairs the committee, has become even more specific. He asked if the Fed would consider implementing “climate stress tests”.

Powell said the Fed is “looking at weather stress tests,” before specifying that the most likely way forward would in fact be “climate stress scenarios” – an exercise that aims to ensure that large institutions Financial institutions understand the risks they face, but do not pose regulatory consequences.

More generally, Brown wanted to know if Powell would make climate change a top priority, as Biden promised when he announced Powell’s re-appointment.

Powell has said he will do this both in his own capacity and with regard to overseeing the big banks – a job that largely belongs to the Fed’s vice chairman for oversight.

Biden has not announced who he will hire for this role. But former Fed Governor Sarah Bloom Raskin, a staunch supporter of mitigating climate-related financial risks, has established herself in recent weeks as the main candidate for the post.

This story also appears in Daily E&E.