GOP senator probes San Francisco Fed research on climate, race

The top Republican on the Senate Banking Committee on Monday asked the Federal Reserve Bank of San Francisco to explain several recent research bulletins and seminars on racial economic disparities and climate change.

In a Monday letter, Sen. Pat Toomey (R-Pa.) asked Mary Daly, president of the San Francisco Fed, to provide a briefing and a decade of records related to the reserve bank’s economic research activities.

“The Federal Reserve may pursue mission creep or welcome itself to political capture. But such activities are inconsistent with its statutory responsibilities,” Toomey wrote.

The San Francisco bank is one of the Federal Reserve system’s 12 reserve institutions, each responsible for conducting monetary and regulatory activities within a certain U.S. region. 

Each reserve bank is responsible for bank supervision and examination, lending to financial institutions, operating Fed services and reporting on the unique business environment and development within its respective district. The Fed system is funded with fees paid by banks and contributes billions of dollars annually to the Treasury.

Reserve banks also publish economic research conducted by staff economists on a wide range of topics relevant to the Fed’s mandate to foster maximum employment, stable prices and a secure banking system.

Toomey argued, however, that “a sizable portion” of San Francisco Fed research focuses “on how matters unrelated to monetary policy impact narrow subgroups of people.” He specifically cited two San Francisco Fed blog posts on racial equity and a series of virtual seminars on the climate-related economic issues hosted by the bank.

The San Francisco Fed has also published recent research on capital flow surges, the economic impact of school closures, inflation, community bank resilience and differences between the U.S. and other advanced economies in recovering from the COVID-19 recession.

While Toomey criticized research from other reserve banks, he wrote that the “seemingly sudden and alarming inclusion of social research” at the San Francisco Fed “risks being of a bitterly partisan nature” and warranted a probe from the Banking panel. 

He asked Daly to provide a briefing for Banking Committee staff, all records related to the San Francisco Fed’s climate seminar series, all documents related to climate change and racial justice research dating back to July 1, 2019, and 10 years of reserve bank’s annual expenses on research and community outreach.

“We have received and are reviewing Sen. Toomey’s letter, and we look forward to discussing the contents with Sen. Toomey’s office,” a spokesman for the San Francisco Fed said. 

Toomey’s letter opens another front in the battle between Republicans and the Fed over the central bank’s growing focus on climate change and other social issues GOP lawmakers consider irrelevant to its mission and Democrats consider essential.

Republicans have fiercely criticized the Fed for creating committees and investing in research related to the potential climate-related risks facing the banks it supervises. The Fed also joined a global network of central banks and financial supervisors focused on climate change.

Fed leaders have insisted that the bank will play no role in setting climate policy for the U.S., but rather focus on how climate change effects bank supervision.

Even so, Republicans fear the bank could eventually steer credit away from certain energy sources — something the Fed has ruled out ever doing.

Toomey and GOP lawmakers have also blasted moves toward climate and diversity policy from the Treasury Department and Securities Exchange Commission (SEC).

Treasury Secretary Janet Yellen has faced intense blowback from Republican lawmakers after declaring climate change “an existential threat” that required action from the department. She has also opened the door to fiscal and regulatory policy designed to limit carbon emissions, but has not explained what form that would take. 

Gary Gensler, Biden’s pick to lead the SEC, also irked Republicans when he voiced support for tougher climate, diversity and political spending disclosure rules for publicly traded firms.