SPEECH DATE:  2020-03-03  SPEAKER:  Deputy Governor Anna Breman  VENUE:  Royal Swedish Academy of Engineering Sciences, Stockholm  SVERIGES RIKSBANK SE-103 37 Stockholm (Brunkebergstorg 11) Tel +46 8 787 00 00 Fax +46 8 21 05 31 registratorn@riksbank.se www.riksbank.se  How the Riksbank can contribute to climate policy1 I would like to start by extending a warm thank-you to Stockholm Resilience Centre, Stockholm Environment Institute, Kungliga Vetenskapsakademien, och Misum for arranging this seminar. Perhaps you recognise the expression Hinc robur et securitas. It is Latin for From here, strength and security. It is the Riksbank’s motto. It is on the Riksbank’s emblem and it has also be seen on some of our banknotes. I learnt this when I arrived at the Riksbank as a new Deputy Governor a few months ago and it stuck – from here, strength and security. As a new Deputy Governor, I feel a responsibility for preserving the Riksbank’s role as a guarantor of strength and security when the world around us is fraught with unease – unease over trade wars, unease over the coronavirus, and unease over climate change, to give a few examples. For a new Deputy Governor, it also becomes evident that those of us in the Executive Board make decisions that affect economic development for households and companies for several years to come. But the statistics we require to fully understand developments can sometimes be incomplete and forecasts are always very uncertain.
Second, when interest rates are at the zero lower bound, the risks of tightening a bit too early are likely to be considerably greater than the risks of tightening a bit too late. A premature tightening might lead to financial conditions that are too restrictive, resulting in a weaker economy and, in turn, an aborted lift-off. This would be problematic in that it would harm the Fed’s credibility and, more importantly, would be difficult to rectify. The U.S. experience during the Great Depression and the Japanese experience over the past two decades illustrate the risks of raising interest rates too soon, especially when inflation is running below the central bank’s objective. Finally, given the still high level of long-term unemployment and the outlook for inflation, there could be a significant benefit to allowing the economy to run “slightly hot” for a while in order to get those that have been unemployed for a long time working again. I believe this can be done without jeopardizing our price stability objective. If the long-term unemployed are not employed relatively soon, their job skills will erode further, reducing their long-term prospects for employment and, therefore, the productive capacity of the U.S. economy. This would be a very unfortunate outcome for them, their families and the country. Market expectations that lift-off will occur around mid-2015 seem reasonable to me.