Fed’s Powell orders deep ethics review after officials’ trade sparked uproar

WASHINGTON, Sept.16 (Reuters) – Federal Reserve Chairman Jerome Powell has ordered a thorough review of the ethics rules governing assets and financial transactions by senior U.S. central bank officials, a door said on Thursday -fed speech.

Powell ordered the review late last week, the spokesperson said in an emailed statement, following recent reports that two of the 12 presidents of the regional reserve banks in the system of the Fed had been active investors in 2020, a particularly volatile year for asset prices as the country battled COVID. The revelations, initially reported by the Wall Street Journal, have prompted senior US lawmakers – including Senator Elizabeth Warren of Massachusetts – to demand tighter restrictions on such activities. Read more

“Because the confidence of the American people is essential for the Federal Reserve to effectively carry out our important mission, President Powell asked board staff late last week to take a fresh and comprehensive look on the rules of ethics concerning the participations and the financial activities authorized by the senior executives of the Fed. official, ”the statement read.

The rules that guide the personal financial practices of Fed officials are the same as those of other government agencies, the spokesperson said. In addition, the Fed has additional rules that are stricter than those of Congress and other agencies specific to its work.

“This review will help identify ways to further strengthen these rules and standards. The board will make changes, if necessary, and any changes will be added to the reserve bank’s code of conduct,” the statement said.

Warren, in a Tweet, called the review “long overdue,” but urged the chairmen of regional Fed banks to impose tough rules themselves.

Following reports of their deals last week, Dallas Fed Chairman Robert Kaplan and Boston Fed Chairman Eric Rosengren both said they would divest all of their holdings of individual stocks to ‘by September 30 and would invest the proceeds in index funds or cash.

Their investments have been judged by internal ethics officers to comply with the ethics rules of the Fed. Kaplan, a former vice president of Goldman Sachs, has been an active trader since taking control of the Dallas Fed in 2015, with multiple million dollar trades in individual stocks each year, according to financial reports. dating from 2016.

Yet their activity sparked a strong backlash given the backdrop of a pandemic year in which tens of millions of people faced unemployment and the economy was on the verge of a threat of depression.

The Fed, from March 2020, deployed a response that broke all records for speed and reach, with interest rates reduced to zero and unlimited promises to use the purchase of bonds and other tools to keep the economy afloat.

The effort stabilized financial markets, secured credit to small businesses, and helped pave the way for a rapid rebound in employment and economic growth.

It also sparked a record spike in asset prices following a crash at the start of the pandemic. Between the Fed’s efforts and the trillions of dollars in government spending approved by Congress, the S&P 500 Index (.SPX) has more than doubled from its pandemic low on March 23, 2020 and sits at around 30 % above peak reached in previous month.

It is not uncommon for Fed officials to hold extended portfolios. Powell, a private equity lawyer with a stint at the Washington-based Carlyle Group, has a net worth of over $ 17 million and possibly much more, according to his latest ethics papers.

But as a rule, they are not active traders, and many join the Fed after completing college or government positions. The holdings of St. Louis Fed Chairman James Bullard are small enough that he handwrites his ethics form. The disclosure by former Fed Chairman Janet Yellen was notable in large part for her stamp collection.

Fed rules explicitly prohibit trading at the time of Fed policy meetings – when market-sensitive information is released – require securities to be held for at least 30 days and prohibit officials from holding bank stocks or securities. funds with holdings concentrated in the financial sector that the Fed oversees.

But broader language in the Fed’s internal rules requires officials to avoid even the appearance of conflict or using their position for personal gain.

For Powell, promoted to the chairmanship of the Fed in 2018 by former President Donald Trump and subsequently the target of Trump’s ire for his handling of the Fed’s interest rate policy, the revelations come to a halt. particularly delicate moment.

His current term as president ends in February and President Joe Biden is in the process of deciding to appoint him for a second four-year term.

Among those advocating a change in the direction of the Fed, one of the main arguments is that Powell, a private equity lawyer, has not been strict enough in his approach to Wall Street.

He also worked to build strong relationships between U.S. lawmakers and preached the need for unelected central bankers to be transparent in their actions and accept oversight from the nation’s elected officials.

Reporting by Howard Schneider; Additional reports by Ann Saphir; Writing by Dan Burns; Editing by Chizu Nomiyama and Dan Grebler

Our Standards: The Thomson Reuters Trust Principles.

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