On January 17, the US Federal Reserve surprised many by announcing its decision to withdraw from the Network for Greening the Financial System (NGFS). This move leaves the global coalition of central banks and regulators, dedicated to managing climate risks in the financial system, without one of its key members. So, what’s next for the Fed?

The Fed explained its exit by citing the NGFS’s expanding scope, which goes beyond what its charter allows. Over the past few years, the Fed has made attempts to integrate climate change issues into its work through initial analyses and reports. However, Fed Chairman Jerome Powell has consistently emphasized the limited role the central bank should play in this area. In his view, the Fed does not have the authority to get involved in climate change policy development. He believes that the responsibility lies with the US Congress.

Notably, the Fed joined the NGFS in 2020. The decision to withdraw from the organization came just three days before the inauguration of US President-elect Donald Trump, who had previously criticized government climate initiatives.

Established in 2017, the NGFS plays a central role in helping central banks and regulators minimize climate-related risks within their monetary policy frameworks. The group also analyzes the impact of climate-related activities on the global financial system.