Why climate change will keep interest rates low for decades, according to Carson Block

AP Photo/Noah Berger

Interest rates will stay at "ridiculously low levels" for decades, Muddy Waters' Carson Block said in a letter to investors.Block believes rates will stay low to combat climate change, according to the letter."Interest rates will be at these levels in order to stimulate investment in technologies to de-carbonize [the economy]," Block said.Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

Investors anticipating a rise in interest rates by the Federal Reserve may be waiting a while, according to Muddy Waters' Carson Block.

In a Wednesday letter to investors, Block explained why he believes interest rates will stay at "ridiculously low levels" for decades: climate change.

In order to decarbonize the economy, lower interest rates will be necessary to stimulate investments in new technologies that can slow or reverse the trends of a warming planet, according to the letter.

"I believe that will become the express policy of the ECB, BOJ, and eventually the Fed," Block said, adding that he doesn't believe government-directed spending will enough to combat climate change. Instead, technological innovation from the private sector will lead efforts to decarbonize the economy, and lower interest rates will help stimulate that innovation, according to Block.

But the Federal Reserve continues to project a rise in the Fed Funds Rate sometime in 2023, assuming the economic recovery from the COVID-19 pandemic progresses further. And in an interview in June, Fed Chairman Jerome Powell said that climate change is not a main consideration when shaping monetary policy.

That doesn't mean the Fed isn't keeping a close eye on climate change, as a recent paper from Fed economist Michael Kiley highlighted that rising temperatures has a "very strong" impact on on downside risks to economic growth.

Read more: Goldman Sachs names 31 stocks to buy as the economy reopens despite the looming threat of the COVID-19 Delta variant

Federal Reserve Governor Lael Brainard has also been vocal about the negative impact climate change is already having on the global economy.

"Climate change is already imposing substantial economic costs and is projected to have a profound effect on the economy at home and abroad," she said in prepared remarks earlier this year. "Future financial and economic impacts will depend on the frequency and severity of climate-related events and on the nature and the speed at which countries around the world transition to a greener economy."

And if economic growth does slow down due to climate change-related impacts, the Fed will have good reason to keep interest rates low, per Block's belief.

"I'm no environmentalist – my two-driver household is the proud owner of 30 cylinders of ICE collectively producing almost 1,400 horsepower. But seriously, our way of life isn't sustainable," Block said.

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