Thursday, October 21, 2021

Fed’s Powell Order Comprehensive Ethics Review After Officials Shout Out of Trading Signals

Washington: Federal Reserve Chairman Jerome Powell has ordered a comprehensive review of the ethics rules governing financial holdings and transactions by senior officials at the US central bank, a Fed spokesman said Thursday.

Powell ordered the review late last week, the spokesman said in an emailed statement, following recent reports that two of the Fed system’s 12 regional reserve bank chairmen were active investors during 2020, a move for asset prices. A particularly volatile year as the country fought. -19 pandemic. Those revelations, originally reported by the Wall Street Journal, prompted senior US lawmakers—including Sen. Elizabeth Warren (D-Mass)—to call for more stringent sanctions on such activities.

“Since the confidence of the American people is essential for the Federal Reserve to effectively fulfill our important mission, Chair Powell last weekend asked board staff to discuss ethics rules around the financial holdings and activities allowed by the senior Fed. Directed to look into the new and wider authorities,” the statement said.

The spokesperson said the rules guiding individual financial practices for Fed officials are similar to those of other government agencies. In addition, the Fed has supplemental rules that are stricter than those of Congress and other agencies that are specific to its work.

“This review will help identify ways to further tighten those rules and standards. The board will make appropriate changes and any changes will be added to the Reserve Bank’s code of conduct,” the statement said.

Warren called the review “long overdue” in a tweet, but encouraged the Fed’s regional bank presidents to impose stricter rules on their own.

Following news reports on their trading last week, Dallas Fed Chairman Robert Kaplan and Boston Fed Chairman Eric Rosengren both said they would split any holdings of individual shares by September 30 and put the proceeds into index funds or cash. .

Robert Kaplan
Robert Kaplan speaks onstage at the Cystic Fibrosis Foundation’s 60th Anniversary Gala on November 19, 2015 in New York. (Nielsen Bernard/Getty Images for the Cystic Fibrosis Foundation)
Eric S Rosengren
Eric S Rosengren
Eric S. Rosengren, President and CEO of the Federal Reserve Bank of Boston, speaks in New York on April 17, 2013. (Keith Bedford/Reuters)

Their investments were assessed by internal ethics officers to comply with Fed ethics regulations. According to 2016 financial disclosures, Kaplan, the former vice president of Goldman Sachs, has been an active trader, with transactions worth several million dollars in individual stocks each year since taking over the Dallas Fed in 2015.

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Nevertheless, his activity drew a sharp reaction in the context of a pandemic year in which millions faced unemployment and the economy was in the grip of a crippling depression.

The Fed, beginning in March of 2020, a response record-breaking for its speed and scope, with interest rates dropping to zero and open-ended promises to buy bonds and use other tools to keep the economy afloat were done.

The effort stabilized financial markets, extended credit to small businesses, and helped set the stage for a resurgence of jobs and economic growth.

It also triggered a record rise in asset prices after the crash at the start of the pandemic. Amid the Fed’s efforts and trillions of dollars in government spending approved by Congress, the S&P 500 index has more than doubled from its pandemic low on March 23, 2020 and is up nearly 30 percent from the high it hit in the past month.

It’s not unusual for Fed officials to hold broad portfolios. Powell, a private equity attorney with a stint at the Washington-based Carlyle Group, is worth more than $17 million and probably much more, according to his latest ethics filing.

But they are not active traders as a rule, and many join the Fed from academic backgrounds or government positions. St. Louis Fed President James Bullard’s holdings are so modest that he writes his moral form by hand. The disclosure of former Fed Chair Janet Yellen was largely notable for its stamp collection.

Fed rules expressly restrict trading around the time of Fed policy meetings – when market-sensitive information is distributed – and require executives to hold securities for at least 30 days with concentrated holdings in the financial sector. The bank prevents the holding of stocks or funds that the Fed oversees.

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

Reuters

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This News Originally From – The Epoch Times

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