Fed officials had securities it was buying during the pandemic, raising new questions about conflicts

Powell orders ethics review after top executives trade millions of dollars

Amid an outcry over Federal Reserve officials owning and trading individual securities, CNBC’s in-depth examination of executive financial disclosures found three who had the same type of assets last year as the Fed itself bought. Has been.

  • Boston Fed Chairman Eric Rosengren held between $ 151,000 and $ 800,000 in mortgage-backed real estate investment trusts. It made 37 separate transactions in four REITS while the Fed bought around $ 700 billion from MBS.
  • Fed Chairman Jerome Powell held between $ 1.25 million and $ 2.5 million in municipal bonds in family trusts, over which he has no control. They represented only a small fraction of his total declared wealth. While the bonds were purchased before 2019, they were held while the Fed bought $ 21.3 billion from Munis last year, including one from the state of Illinois purchased by his family trust in 2016. One of the very few bonds the Fed bought last year was from the state of Illinois.
  • Richmond Fed Chairman Thomas Barkin held between $ 3 million and $ 1.35 million in individual corporate bonds purchased before 2020. These include bonds from Pepsi, Home Depot and Eli Lilly. The Fed opened a facility to buy corporate bonds last year and bought $ 46.5 billion in corporate bonds.

None of these holdings or transactions violate the Fed’s code of conduct. But they raise questions about the Fed’s conflict of interest policies and the oversight of central bank officials.

Among these questions: Should the Fed have banned officials from holding, buying and selling the same assets that the Fed itself bought last year, when it significantly expanded the type of assets it she was researching during the pandemic? Will buy in response?

The Fed’s own code of conduct states that officials should “be careful to avoid any transaction or other conduct that may also express the presence of a conflict between their personal interests, the interests of the system and the public interest.”

A Fed spokesperson told CNBC that Powell has no say in individual municipal bond purchases and the Fed’s investments in its family trusts. A Fed ethics official determined that the holdings did not violate government regulations.

Barkin declined to comment.

Rosengren has announced that he will sell his personal positions and cease trading as long as he is president. Dallas Fed Chairman Robert Kaplan, who actively trades millions of dollars in individual stocks, has also said he will no longer trade and sell his individual positions. But he said his company did not violate the ethics rules of the Fed.

A spokesperson for Rosengren told CNBC he “made sure his personal savings and investment transactions were permitted under the ethics rules of the Fed.”

But Dennis Kelleher, CEO of the nonprofit Better Markets, said if some of these actions by the Fed aren’t against the rules, then the rules need to be changed.

“To think that this type of trading is acceptable as perceived by current Fed policies only underscores that Fed policies are deeply flawed,” Kelleher told CNBC.

Rosengren and Kaplan’s trade was conducted during the so-called blackout period, when Fed officials are not allowed to speak publicly about monetary or trade policy, Kelleher said during a crisis similar to that of last year, “The entire year must be considered a blackout period,” as Fed officials are constantly discussing and formulating policies in response to rapid events.

In response to questions from CNBC posed during our research, a Fed spokesperson on Thursday released a statement saying that Powell last week ordered a review of the Fed’s ethics rules regarding “financial assets and activities. authorized by senior Fed officials “. Given.

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