• Fed chair Jay Powell distanced himself from Trump’s false claim about renovation costs
• Fed withdrew from NGFS days before Trump took office, citing scope concerns
• NGFS warns climate change could slash global GDP by 15 percent by 2050
• A May report shows short-term climate shocks could cause a 2.5 percent GDP drop
• New NGFS paper urges firms to integrate physical climate risk into transition plans
• The Bank of England, ECB, and RBI are increasing pressure on banks to act
• NGFS modelling shows underestimated economic risks from tipping points
• Markets are largely ignoring climate warnings despite mounting evidence
• Critics accuse the Fed of bowing to political pressure from the Trump administration
• Global central banks see climate risk as an urgent financial stability threat

Jay Powell cut a strained figure in his awkward recent appearance beside Donald Trump, distancing himself from the president’s false claim about renovation costs at the Federal Reserve.

But the real rupture between the central bank and its international peers had already occurred months earlier, when Powell withdrew the Fed from the world’s leading climate-risk network just days before Trump’s return to office.

The move marked a clear shift in US central banking priorities. While the rest of the world’s financial regulators ramp up their warnings about the economic threat posed by climate change, the Federal Reserve is backing away, citing a need to focus on its core mandate.

Yet as the Network for Greening the Financial System (NGFS) published another dire report this week, it became clear that global momentum on climate adaptation is accelerating – even without US leadership.

The NGFS, which counts 147 central banks and regulators as members, warned last November that climate change could slash global GDP by nearly 15 percent by 2050 if governments stick only to currently announced policies. That long-term forecast was followed by a more urgent one in May: severe climate events within the next few years could reduce global GDP by 2.5 percent annually and trigger a wave of defaults in high-capital industries.

Despite the scale of these warnings, markets have largely shrugged. One notable exception is Norway’s $1.8 trillion wealth fund, which used NGFS data to run its own modelling and uncovered major valuation risks to its equity holdings.

But on the whole, investor response has been muted – a fact that central banks are now trying to change.

This week’s NGFS publication might not command headlines like its predecessors, but it could have a deeper impact.

The paper introduces a comprehensive framework for climate adaptation planning – a step beyond the energy transition focus of most current financial sector strategies.

It urges banks and insurers to integrate physical climate risks, such as floods and wildfires, into their transition plans.

The Bank of England has already issued directives pushing firms to address shortcomings in how they handle physical climate threats. The European Central Bank is urging lenders to reflect these risks in how they value loan collateral. The Banque de France is rolling out digital tools to help businesses assess their exposure. And in India, the central bank is finalising rules to force banks to conduct regular stress tests on weather-related financial shocks.

NGFS chair Sabine Mauderer, an executive board member at the Bundesbank, said central banks have woken up to just how much they had misjudged the scale of the threat. “Over the years, we realised that we completely underestimated physical risk,” she said in an interview.

While critics may see the NGFS’s push as bureaucratic mission creep, the network insists it is responding to hard data.

Recent advances in scenario modelling now allow economists to better simulate cascading climate events – including tipping points like permafrost thaw – that can ripple through the global economy.

The models are still imperfect, but the NGFS warns they are more likely to understate than overstate potential losses.

The Fed’s decision to walk away from this work stands in stark contrast to every other G20 central bank.

Its stated reason – that the NGFS had broadened beyond its mandate – has been met with scepticism by observers who suspect political pressure from Trump’s pro-fossil fuel administration played a role.

Still, the NGFS’s new guidance may prove more consequential than any political posturing. By urging financial firms to take physical risks as seriously as transition ones, and by offering concrete tools to help them do so, the NGFS is building a playbook for resilience.