Jerome Powell says Fed to change trading rules for central bank officials
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Laffer Tengler Investments CIO Nancy Tengler and Wuill Intelligence LLC CEO Danielle DiMartino Booth discuss Chair of the Federal Reserve Jerome Powell's press conference on 'Making Money'
Federal Reserve Chairman Jerome Powell said on Wednesday the U.S. central bank's current rules dictating what its officials are allowed to invest in and trade are "not adequate" and need to be updated after recent disclosures showed that two Fed officials actively traded markets in 2020.
Powell's comments come after recent revelations that two of his colleagues – Robert Kaplan, president of the Federal Reserve Bank of Dallas, and Eric Rosengren, president of the Federal Reserve Bank of Boston – bought and sold stocks and real-estate tied assets last year as the central bank undertook aggressive policy action to shore up the economy.
"We need to make changes, and we're going to do that as a consequence of this," Powell told reporters following the Fed's two-day policy-setting meeting. "No one is happy about this."
Kaplan traded millions of dollars of stock in companies including Apple, Amazon and Google, while Rosengren trade in stocks and real estate investment trusts, according to financial disclosure forms. Both men defended their actions, but pledged to divest their holdings to avoid the appearance of a conflict of interest.
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"We understand very well that the trust of the American people is essential for us to effectively carry out our mission," Powell said Wednesday. "It is now clearly seen as not adequate to the task of really sustaining the public's trust in us."
Still, some advocates want the Fed to take additional steps beyond an internal review and a promise to update the stock trading rules. In a letter last week to all 12 regional Fed banks, Sen. Elizabeth Warren, D-Mass., called for the complete ban on stock ownership by senior officials.
"The controversy over asset trading by high-level Fed personnel highlights why it is necessary to ban ownership and trading of individual stocks by senior officials who are supposed to serve the public interest," she wrote.
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Under the Fed’s complex structure, the 12 regional banks are chartered as private organizations but are overseen by the Federal Reserve’s board in Washington, known as the Board of Governors. The regional banks have their own codes of conduct, though they are largely identical to the rules that govern the Fed’s board.
The Board of Governors follows the same rules on investing and trading as other government agencies, but also follows additional rules "that are stricter than those that apply to Congress and other agencies," the Fed said recently.
Fed officials, for example, cannot invest in banks, many of which are supervised by the Fed. They are also prohibited from making trades during a roughly 10-day period before each Fed meeting, and are not supposed to hold a security for less than 30 days.
The Associated Press contributed to this report