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

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Federal Reserve Chairman Jerome Powell testifies during a hearing of the United States House Oversight and Reform Subcommittee on the coronavirus crisis at Capitol Hill in Washington, United States on 22 June 2021. Graeme Jennings / Pool via REUTERS

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 that are specific to the work carried out by the Fed.

“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.

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.

However, while their investments were deemed to comply with the ethical rules of the Fed, their activity provoked a strong reaction. In 2020, the Fed made a massive effort to heal the economy during the pandemic, with low interest rates and massive bond purchases that stabilized financial markets and helped set the stage for a record surge in prices. asset prices after a crash at the start of the crisis.

Some Fed officials hold large portfolios – Powell’s net worth exceeds $ 17 million and possibly much more, according to his latest ethics documents – but they are generally not active traders.

Fed rules explicitly prohibit trading at the time of Fed meetings and require securities to be held for at least 30 days.

But the broader language of the Fed’s internal rules requires officials to avoid even the appearance of conflict or to use their position and access to information on market movements 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 whether 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; Writing by Dan Burns; Editing by Chizu Nomiyama and Dan Grebler

Our standards: Thomson Reuters Trust Principles.


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