The Federal Reserve’s climate change neglect continues at Jackson Hole
By Elyse Schupak, policy advocate with Public Citizen’s Climate Program
The Federal Reserve Bank of Kansas City will host its annual Jackson Hole economic policy symposium this week—the Federal Reserve’s highest profile annual event. Central bankers, policymakers, academics, and economists will gather to share research and policy ideas on this year’s symposium topic: Labor Markets in Transition: Demographics, Productivity, and Macroeconomic Policy.
Despite the significant and well-telegraphed adverse impacts of climate change on the economy and financial system, including on labor markets, climate change is absent from the symposium agenda. Rather than grapple with the research demonstrating that climate change will diminish labor productivity, drag down economic growth, and reshape the geographic distribution of the U.S. labor force, the Federal Reserve is once again ignoring the impacts of climate change and the needed policy response.
Since the start of the year, the Federal Reserve, under Chair Powell, has backtracked on numerous climate-related initiatives and supervisory measures, caving to pressure from the Trump administration. On monetary policy impacts, Chair Powell has neglected the issue of climate change altogether. This negligence compromises both Federal Reserve efficacy and independence, exacerbating the economic hardship the climate crisis is creating.
Climate-related impacts on labor markets should be front and center at Jackson Hole.
In leaving climate change off the agenda at Jackson Hole, the Federal Reserve is neglecting one of the key drivers of developments in U.S. labor markets in the coming decades and failing to prepare for the ways climate change will affect the macroeconomy and the Federal Reserve’s ability to meet its monetary policy mandate of price stability and maximum employment.
Climate change, in particular extreme heat, is already having significant impacts on U.S. labor markets—putting downward pressure on labor supply and productivity while increasing negative occupational health effects and workplace injuries. Currently, extreme heat costs the U.S. economy approximately $100 billion per year in labor productivity impacts and U.S. productivity losses are predicted to reach $200 billion annually by 2030 and $500 billion annually by 2050. Research published in The Lancet estimates that global effective labor (combined labor supply and productivity) will decrease by 6.7 percent under 1.5°C of warming, by 10.3 percent under 2.0°C of warming, and by 18.3 percent under a 3.0°C warming scenario. Without urgent policy change, we are on track for a 3.0°C warming scenario.
The impacts of extreme heat on labor productivity are not uniform across sectors and geographies. Construction, agriculture, mining, and other economic sectors where labor is performed primarily outdoors are particularly exposed to declines in productivity due to extreme heat. These frontline workers are projected to lose approximately $2.6 billion in total annual earnings because of extreme heat by 2065. Across the U.S., lost earnings due to extreme heat disproportionately impact workers earning wages below the national median as well as Black and Hispanic workers, exacerbating inequality, including across racial lines. It is also important to note the toll in human lives and suffering that extreme heat is causing for workers in the US, particularly given the patchwork of worker protections afforded only in some states, and the long delay in a federal OSHA heat injury and illness standard.
Declines in labor productivity as well as resource scarcity, uninsurability, displacement, conflict, physical damage, mortality, and other impacts of climate change are expected to lead to significant global GDP loss. The U.K. Institute and Faculty of Actuaries and Exeter University warns that the global economy could face GDP loss of at least 50 percent between 2070 and 2090 if nothing is done to curb emissions. Economists Adrien Bilal and Diego R. Känzig estimate that 1°C of warming reduces world GDP by 12 percent and 3°C of warming above pre-industrial levels by 2100 implies a GDP reduction of 46 percent. To put these figures in perspective, the economic damages associated with 3°C of warming are equivalent to those experienced during the Great Depression, but would be permanent.
Climate change poses risks to the economy and financial stability beyond labor markets.
Climate change impacts to the economy and financial system are not limited to labor markets. Climate change will have destabilizing effects on insurance and housing markets, state and local governments, and contribute to a variety of adverse economic outcomes, including above-target inflation.
The most visible risk climate change poses to the economy and financial system today is its destabilizing effect on property insurance markets. Increasingly frequent and severe climate disasters are driving up the cost and reducing the availability of property insurance across the country—financially burdening homeowners and renters. The Federal Reserve Bank of Dallas found that rising property insurance costs are driving up household indebtedness and mortgage and credit card delinquencies. The lack of insurance availability will diminish credit access and erode real estate values, creating financial risks for lenders, Government Sponsored Enterprises, and investors. As Chair Powell testified at a Senate Banking Committee hearing in February, “If you fast forward 10 or 15 years, there will be regions of the country where you can’t get a mortgage, there won’t be ATMs, banks won’t have branches and things like that.”
The loss of insurance—and in turn the loss of credit, and other financial services—as well as climate disasters themselves are driving families and businesses out of communities. First Street projects that over 55 million Americans will relocate within the U.S. to areas less vulnerable to climate risks by 2055. This climate migration will depress property values and lower municipal tax revenue in climate vulnerable communities. At the same time, disaster cleanup and mitigation investments are driving up costs for state and local governments. An analysis by Bloomberg Intelligence found that the U.S. has spent nearly $1 trillion dollars on disaster recovery and other climate-related needs over the 12 months ending May 1, 2025, totalling three percent of GDP. Though costs have risen, the share of disaster cleanup and prevention dollars assumed by the federal government has fallen to a paltry two percent, burdening households and local governments instead. For vulnerable communities, climate change impacts can create a financial doom loop—driving up expenses, reducing tax revenue, and increasing the cost of borrowing to bridge this gap.
Climate change is also adversely impacting the macroeconomic variables central to the Federal Reserve’s mandate. Research from Potsdam University and the European Central Bank finds that climate change will create persistent price increases across multiple sectors of the economy. Climate disasters and extreme heat will damage roads, ports, and other essential infrastructure, create significant labor market disruptions, and otherwise obstruct transportation, logistics, and the supply of goods and services. These supply shocks can create inflation spikes the Federal Reserve’s existing monetary policy tools are ill-suited to address. Coupled with the effects of climate change on productivity and growth, climate-driven inflationary pressures can drive stagflation—high inflation and low growth—a worst case scenario for the Federal Reserve that limits the efficacy of its monetary policy and causes significant economic pain for Americans.
This list of transmission channels is not exhaustive. Without rapid and significant global emissions reduction, climate change will touch virtually all aspects of the economy and financial system. But the Federal Reserve has thus far failed to adequately incorporate these risks into monetary policy or bank supervision. On the contrary, Chair Powell has described the Federal Reserve’s approach to climate change as “the bare minimum.”
The Federal Reserve should expand, not roll back, its action on climate-related risks and developments.
Since the start of the year, the Federal Reserve has abandoned many of its prior efforts to address the risks climate change poses to the economy and financial system. Three days before President Trump’s inauguration, the Federal Reserve withdrew from the Network of Central Banks and Supervisors for Greening the Financial System (NGFS), the organization, spanning more than 90 countries, created to facilitate information sharing and best practices for mitigating climate-related financial risks. It dissolved four climate-related committees to support understanding of climate risk faced by the financial system and the banks the Federal Reserve supervises, failed to continue assessing big bank exposure to climate risks with scenario analysis, and led an unsuccessful effort to dissolve the Basel Committee on Banking Supervision’s climate task force. The New York Times has also reported that regional banks in the Federal Reserve System have pulled back on climate-related economic research since President Trump took office.
These actions move the Federal Reserve in the wrong direction, but simply stopping this trend and even rolling back the clock would be insufficient. Adequately addressing the economic and financial impacts of climate change requires fully integrating climate risk into the Federal Reserve’s supervisory role—mitigating climate risks that banks face and create and addressing the threats climate change poses to financial stability. It requires an expanded research agenda into the numerous transmission channels through which climate change impacts will materialize in the economy and financial system. And it requires the Federal Reserve to integrate climate change considerations into its monetary policymaking to address the ways that climate change will both create adverse macroeconomic outcomes and limit the Federal Reserve’s ability to address these outcomes with existing monetary policy tools. In neglecting climate change at Jackson Hole, the Federal Reserve is failing to even look at, let alone advance this urgent work.
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