For how long has the Federal Reserve been intruding into areas of public policy that it knows nothing about? I don’t know, but in recent years the Fed has been one of many institutions that has put their legitimate powers behind illegitimate political ends.

Take, for example, the Earth’s climate. This is a field of science in which the Fed has absolutely no expertise, yet it has thrown its weight behind leftist objectives. In the Wall Street Journal, David Barker writes (links omitted):

This year the Fed is forcing big banks to produce complex reports on their climate vulnerability in a “pilot project” that is sure to expand and might lead to lending restrictions. A query of the Fed’s listing of recent publications returns hundreds of research papers, press releases and policy statements related to climate change. The San Francisco Fed hosted a conference on climate change in May, in which 27 Fed economists participated.

With all this effort, one might hope the Fed would produce high-quality research on climate change. But I took a close look at two Fed studies on the subject and found shockingly poor analysis. …

In the September issue of Econ Journal Watch, I discredited a paper from the Richmond Fed claiming that warming reduces economic growth in the U.S. I showed that the paper had serious problems with its statistical reasoning and robustness. My analysis concluded that the data used in the paper showed no meaningful relationship between temperatures and growth.

More recently I published a critique of a study from the Federal Reserve Board claiming that a year of above-normal temperatures in countries around the world makes economic contraction more likely. The original study used sophisticated statistical techniques but failed to report that its primary finding was statistically insignificant. My request to the study’s author for computer code to reproduce the paper’s results went unanswered.
***
There are two main reasons why the Fed study appeared at first to show a statistically significant effect of temperatures on economic growth. First, each country in the sample had equal weight in the analysis. China had the same weight as St. Vincent though China’s population is 13,000 times as large. Equal weighting means that some small countries with unusual histories of economic growth greatly influenced the results.

The paper’s results disappeared when countries like Rwanda and Equatorial Guinea—which had economic catastrophes and bonanzas unrelated to climate change—were omitted. Omitting similar countries representing less than 1% of world gross domestic product was enough to eliminate the paper’s result. ***
There’s a second reason why the Fed study appears to find that temperature affects growth: Many poor countries have warm climates. ***

The only thing to learn from the Fed’s research is that climate propaganda is spreading fast, and when it comes to climate, academic economists are no more deserving of trust than are other supposed scientists and experts. The Fed’s time would be better spent on more urgent matters, like improving its botched regulation of the banking system.

It is amazing how much bad “science” is being done in the name of climate change. But that isn’t all: following the George Floyd riots, the Minneapolis Fed campaigned aggressively for an amendment to Minnesota’s Constitution that would have turned control of the public schools over to the state’s court system. This campaign wasn’t just a bad idea, it was illegal, as Peter Nelson of Center of the American Experiment showed. With help from Senator Pat Toomey’s office, we were able to end this unlawful Fed campaign.

How can the Fed be held more accountable? It would help if we could get access to the organization’s records, but until now the Fed has claimed that it is not required to comply with Freedom of Information Act requests because it is not a government agency. Once again, my organization is taking the lead in contesting this position. Maybe if we can shed enough light on the Fed’s wayward leftism, we can improve the odds of getting good monetary policy. More to come on this.