Fed policymakers trading for closer scrutiny

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Oct. 4 (Reuters) – Senator Elizabeth Warren on Monday called on the United States’ Securities and Exchange Commission to investigate the transactions of major U.S. central bankers, including that of two Fed bank chairmen who resigned after the outcry general aroused by their transactions.

In a letter to SEC Chairman Gary Gensler, Warren also cited the transactions of Fed Vice Chairman Richard Clarida in February 2020, shortly before Fed Chairman Jerome Powell issued a warning about the risks of the coronavirus and promised a response from the Fed if necessary.

“Reports of this financial activity by Fed officials raise serious questions about possible conflicts of interest and reveal a contempt for public confidence,” Warren wrote in the letter, made public. “If these transactions were based on knowledge by Fed officials of non-public information about market movements, they could have represented potentially illegal activity.”

An SEC spokesperson declined to comment.

The Fed launched its own review of ethics and trading rules last month after revealing that Boston Fed Chairman Eric Rosengren had traded real estate securities and Dallas Fed Chairman Robert Kaplan , had traded millions of dollars in individual stocks last year even as the Fed carried out a bailout. the US economy and financial markets with massive purchases of treasury bills and house-backed bonds.

Both said they followed the Fed’s trade rules.

Separately, the Fed said on Monday that it began discussions with its Inspector General’s office last week to determine whether transactions by “certain senior officials” were ethical and legal.

“We welcome this review and will accept and take appropriate action based on its findings,” a Fed spokesperson said.

Rosengren quit her job last week, citing kidney disease. Kaplan is due to leave on Friday.

The ethics spotlight comes at a delicate time for Powell, as US President Joe Biden decides to reappoint him for another four-year term or pick someone else to take the reins of the central bank in from next February. Clarida’s term as Vice President also ends early next year.

The Clarida transaction, reported late Friday by Bloomberg News, involved the sale of between $ 1 million and $ 5 million of one bond fund and the purchase of a similar amount of two equity funds on February 27, 2020, one day before Powell issued a statement calling for “evolving” risks to the US economy from the pandemic.

The value of all three funds fell sharply in the weeks that followed, as the Fed cut rates and bought bonds to cushion the blow of government-imposed business closures.

Today, the bond index fund is trading barely above what it was when Clarida sold; equity-indexed funds have risen 16% and 38% respectively since Clarida bought them.

The Fed told Bloomberg that the Clarida trades were a “pre-planned” rebalance and fund selection approved by the chief ethics officer on the board.

Warren last week called Powell a “dangerous man” and said she would oppose his reappointment because of what she sees as a weakening of banking supervision during her tenure.

Report by Ann Saphir and Jonnelle Marte; Additional reporting by Michelle Price; Editing by Dan Grebler, Andrea Ricci and Lincoln Feast.

Our Standards: Thomson Reuters Trust Principles.


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