Federal Reserve Chair Jerome Powell on Wednesday pledged that the central bank will strengthen its ethics rules after an outcry surrounding financial trades during the pandemic by two top policymakers.
The trades by Dallas Fed President Robert Kaplan and Boston Fed President Eric Rosengren have sparked calls by some progressive groups for their resignation and a push by Sen. Elizabeth Warren (D-Mass.) to ban all trading on individual stocks by Fed officials.
Financial disclosures showed that the two Fed presidents had bought and sold stocks and real-estate-linked assets in 2020 as the central bank was engaged in an extensive rescue of financial markets.
Powell, speaking at a press conference after a Fed policy meeting, said he wasn’t previously aware of the trades. But he said it’s clear changes are necessary.
The existing ethics framework “served us well, but it is now clearly seen as not adequate to the task of really sustaining the public’s trust in us,” Powell said in response to a question. “We need to make changes, and we’re going to do that as a consequence of this.”
“We understand very well that the trust of the American people is essential for us to effectively carry out our mission, and that’s why I directed the Fed to begin a comprehensive review of the ethics rules around permissible financial holdings and activity by Fed officials,” he added.
Both regional Fed presidents have said they will sell the assets to avoid any suggestion of impropriety, though their actions were allowed under Fed ethics rules. The Wall Street Journal earlier reported on Kaplan’s financial disclosure that showed he had made multiple stock trades worth more than $1 million in 2020, including on Apple, Amazon, Boeing and Alphabet, Google’s parent company.
Some groups have called for further action against the two men; the Revolving Door Project, which scrutinizes executive branch appointees, said they should be placed on administrative leave pending a full investigation, while Better Markets said they should resign or be fired.
The fracas raises uncomfortable questions for the Fed as Powell is awaiting word on whether President Joe Biden will appoint him to a second term.
Powell didn’t specifically address calls by some, including Warren, for a prohibition on trading in stocks by Fed officials, but he did agree that the central bank’s policymakers generally should not own the same assets that the institution is buying.
He acknowledged that he has been invested in municipal bonds for years, and the central bank last year engaged in an unprecedented rescue of states and cities that included loans to Illinois and New York City’s transit system.
“I personally owned municipal securities for many, many years,” the Fed chief said, adding that he is simply holding them until they mature. “That was considered safe because no one expected the Fed to buy municipal securities.”
Powell noted that he reversed that policy during the pandemic because the market was about to collapse. “We also checked with the Office of Government Ethics, who looked carefully at it and said I did not have a conflict,” he said. But he added that generally the Fed should avoid this kind of entanglement.
“I want to be able to look back on this years from now and know that we rose to meet this challenge and handled the situation well, and that what we did made a lot of sense and protected the public’s interest and the institution that we’re all part of,” he said.
Because of the quasi-private structure of regional Fed banks, their presidents are not required to disclose their financial trades to the Office of Government Ethics, unlike Powell and other members of the Fed’s Washington-based board. The 12 banks prepare annual disclosures that they release voluntarily.
The disclosure from each regional president is certified by their own bank’s ethics officials, although the disclosure is also shared with the Fed board in Washington.
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