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Trump’s First Mistake – The Federal Reserve’s Exit from Climate Risk Oversight and Its Long-Term Consequences

The announcement that the U.S. Federal Reserve is withdrawing from the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) marks a devastating first act under the incoming Trump administration. This decision, ostensibly justified by claims of overreach beyond the Fed's statutory mandate, not only signals a retreat from global cooperation but also echoes the short-sightedness that contributed to the 2008 financial crisis.

A Regressive Step at a Critical Time

The NGFS was established to integrate climate risk into monetary policy and financial system oversight—an essential initiative given the increasing evidence of climate-related financial instability. Climate change poses systemic risks: hurricanes devastate infrastructure, wildfires disrupt cities and supply chains, and rising sea levels threaten entire industries. Ignoring these realities makes our financial system more vulnerable.

By exiting the NGFS, the Federal Reserve isolates itself from global efforts to address these systemic threats. This retreat is not an isolated act but a symptom of a larger, Trump-driven rejection of collective responsibility for social costs (DEI, rule of law, etc.). This withdrawal comes as major U.S. banks and institutions, likely emboldened by Trump’s stance, also pull back from private-sector climate initiatives. The message is clear: short-term profits are being prioritized over long-term stability.

Echoes of 2008

This move is disturbingly reminiscent of the mistakes leading up to the 2008 financial crisis. Back then, blind spots in regulatory oversight and a failure to address systemic risks led to one of the greatest economic downturns in history, costing the US $19 trillion. The parallels are chilling. Just as regulators ignored mounting vulnerabilities in the housing market and financial derivatives, today’s leaders are choosing to overlook the mounting financial risks posed by climate change.

Our involvement in suing the Fed prior to the 2008 crisis gave us a firsthand view of how the lack of foresight and accountability among financial regulators can wreak havoc on ordinary people’s lives. The Fed’s exit from the NGFS could create a similar blind spot, as banks and other financial institutions increasingly downplay climate risks while the repercussions grow ever more severe. The costs of inaction today will far outweigh the costs of mitigation.

Trump’s Damaging Legacy Begins

This is the first of what will likely be many damaging policy decisions under Trump’s second presidency. His administration’s disdain for science, global cooperation, and long-term planning threatens to unravel years of progress. The decision to leave the NGFS is emblematic of a broader trend: rejecting international collaboration in favor of insular, politically expedient posturing.

Climate change is not a distant threat; it is a present and growing danger. By abdicating its responsibility to help steer global financial systems toward resilience, the Federal Reserve—and by extension, the United States—is shirking its duty to protect the economy and the public from predictable and preventable crises.

A Call for Accountability

We must learn from the past. The financial crisis of 2008 taught us the consequences of ignoring systemic risks. This withdrawal from climate-related financial oversight represents a similar failure to recognize and act on clear warnings. As Trump takes office, we must hold his administration and the institutions under his influence accountable. The costs of inaction, as history has shown, will be borne not by the wealthy and powerful but by ordinary people who rely on a stable financial system.

It’s not too late to course-correct. Leaders in Congress, financial institutions, and civil society must demand the Federal Reserve’s re-engagement with climate risk oversight. The alternative is to repeat the mistakes of 2008, this time with even greater and more far-reaching consequences.

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