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 Eric Rosengren, president of the Federal Reserve Bank of Dallas and Robert Kaplan, president of the Federal Reserve Bank of Boston bought and sold stocks and related assets last year, as the central bank undertook aggressive policy action to shore up the economy.
We are going to make changes, and we're going to do that as a consequence of this, Powell told reporters after the Fed's two-day policy meeting. No one is happy about that. Rosengren traded millions of dollars in stocks trading companies including Apple, Amazon and Google, while Kaplan traded stock indices and real estate investment trusts, according to financial disclosure forms. Both men pledged their actions but defended their holdings to avoid the appearance of a conflict of interest.
We understand very well that the trust of the American people is essential to carry out our mission, Powell said on Wednesday. It is now clearly seen as not adequate to the task of really increasing the public trust in us. However, 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 the previous week to all 12 regional Fed banks, Sen. Elizabeth Warren, D-Mass., sent to Senate Committee on Finance and Management. The senior officials called for complete suspension of stock ownership.
The controversy over asset trading by senior Fed personnel highlights why it is necessary to interdict ownership and trading of individual shares by high-level corporate officials that are supposed to serve the public interest, she wrote.
Under the Federal Reserve s complex structure, the 12 regional banks are controlled as private organizations that are chartered by the Federal Reserve 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 agencies, but also follows additional rules that are stricter than those applied 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 doing trading in excess of a 30 days period before every Fed meeting and are not required to hold a security for less than 10 days.