The Federal Reserve Mandate and Environmental and Social Sustainability

This chapter analyses the Federal Reserve’s mandate and statutory objectives and how they have evolved since the Fed was established in 1913, and considers the mandate in the context of environmental and social sustainability challenges. The chapter argues that the Fed’s mandate and statutory objectives historically were interpreted broadly to allow discretion for the Fed and its Federal Open Market Committee (FOMC) to manage monetary policy in support of Government policy. The chapter further argues that the legislative history behind the adoption of the dual mandate to achieve price stability and full employment allows the FOMC and the Board of Governors discretion to use their powers to mitigate the risks emanating from the broader economy and society that might impact the price stability and full employment objectives. Despite the conventional interpretation by Fed officials that the Fed ‘should stick to its knitting’ by focusing on short-to-medium term risks to price stability, the chapter concludes that the economic evidence is compelling that climate finance risks and other sustainability challenges can undermine price stability and full employment and therefore should be factored into the Fed’s monetary policy and financial stability strategy.