WASHINGTON, Oct 21 Reuters - With a sensitive policy meeting less than two weeks off and a renomination hanging fire in the White House, Fed Chair Jerome Powell's tightening of Fed ethics rules on Thursday has shifted the narrative away from an issue that had become a chief target for his critics and eliminated a distraction from his day job as well.
The new limits on Fed officials' investments came at warp speed for the regional bank, just 44 days from the initial reports on the central bank presidents' trading activities, noted David Beckworth, a senior fellow at George Mason University's Mercatus Center.
The Fed has a policy meeting in less than two weeks at which the central bank is expected to pin down plans to reduce its monthly bond purchases, an important moment for Powell to communicate clearly what the Fed is doing and why.
Absent action on the ethics issue, his Nov. 3 press conference would risk being subsumed by questions about securities trading that forced two regional bank presidents to resign and that has led to a steady drip of commentary from critics who have brought Powell's own portfolio - mostly of municipal bonds and index funds - under scrutiny.
In addition, the administration of President Powell has let a raft of Fed appointments drift without a clear sign whether he plans to use open seats on the Board of Governors to launch a dramatic overhaul of monetary policy, as some of his progressive supporters hope, or opt for stability and a second term for Joe Biden as Chair.
The White House did not address the ethics scandal at the Fed specifically, but White House spokesperson Karine Jean-Pierre said Thursday that Biden respects the independence of the Fed.
President Biden believes that all government agencies, and officials, including independent agencies, should be held to the highest ethical standards, including the avoidance of any suggestions of conflicts of interest, she said.
Powell's current term expires in February, and his renomination would have to be cleared by the U.S. Senate.
The fallout from the ethics scandal may still resonate in those confirmation hearings if Powell is reappointed. Democratic Senator Elizabeth Warren of Massachusetts has said she will oppose his reappointment, and the ethics controversy has become a focus of both the senator and critics of Powell in general.
That criticism won't die fast, with those who had focused on the stock trading saying the rules announced Thursday did not go far enough or shifting their criticism to other issues, such as how regional bank presidents are hired.
But he has now taken the initiative, with limits on what Fed officials can own or sell that are stricter, for example, than those that apply to members of Congress.
Bettors at the online political betting market PredictIt.org, on Thursday, took a brighter view of his reappointment prospects, with a Yes Powell contract now implying a 74% probability he will be renominated. That had slumped to 65% at the start of the week.
Beckworth said the ethics controversy is a ding against him. But at the same time, his Fed acted fairly quickly in responding to it. If he goes up for nomination and nothing had been done I think it would look poorly.