Federal Reserve Chairman Jerome Powell sold between $1million and $5million worth of stock options that he owned just before the stock market tanked last year because the government failed to pass a stimulus measure, it has been reported.
Powell’s stock sale was reported just weeks after two top officials with the central bank resigned and a third came under fire for making multi-million dollar stock trades during the COVID-19 pandemic.
He made the stock sales on October 1, 2020 – just as talks between Congress and the Trump White House over a new stimulus package broke down while COVID case counts, deaths, and hospitalizations were spiking, according to Prospect.
In the weeks after Powell’s stock sales, the Dow Jones Industrial Average nosedived, losing 1,600 points in the month of October – or 6 percent of its value.
Dallas Fed President Robert Kaplan and Boston Fed President Eric Rosengren announced their retirements last month as they faced a backlash for cashing out while having knowledge of the central bank’s plans to bolster financial markets during the pandemic.
Kaplan traded millions of dollars in stock in companies such as Apple, Amazon, and Google. Rosengren traded in stocks and real estate investment trusts, according to financial disclosure forms.
Rosengren’s holdings at the end of last year were much smaller than Kaplan’s but include shares of Chevron, Pfizer, Phillips 66, and several real estate investment trusts.
Powell ordered a sweeping review of the ethics rules governing financial holdings and dealings by senior officials after revelations about Rosengren and Kaplan were reported by The Wall Street Journal.
Federal Reserve Chairman Jerome Powell (seen above on Capitol Hill on September 30) sold between $1million and $5million worth of stock options that he owned just before the stock market tanked last year because the government failed to pass a stimulus measure, it has been reported
He made the stock sales on October 1, 2020 – just as talks between Congress and the Trump White House over a new stimulus package broke down while COVID case counts, deaths, and hospitalizations were spiking. In the weeks after Powell’s stock sales, the Dow Jones Industrial Average nosedived, losing 1,600 points in the month of October – or 6 percent of its value
Another top official, Fed Vice Chair Richard Clarida, traded between $1million and $5million out of a bond fund into stock funds one day before Powell issued a statement indicating potential policy action due to the worsening of the COVID-19 pandemic.
Clarida’s trades were described in his 2020 financial disclosures, showing the shifting of funds out of a Pimco bond fund on February 27, 2020, and buying the Pimco StocksPlus Fund and the iShares MSCI USA Min Vol Factor exchange-traded fund in similar dollar ranges, on the same day.
The next day on February 28, 2020, Powell released a statement that said coronavirus ‘poses evolving risks to economic activity.’
He added that the Fed was ‘closely monitoring developments and their implications for the economic outlook.’
‘Vice Chair Clarida’s financial disclosure for 2020 shows transactions that represent a pre-planned rebalancing to his accounts, similar to a rebalancing he did and reported in April 2019,’ a Fed spokesman told Reuters.
‘The transactions were executed prior to his involvement in deliberations on Federal Reserve actions to respond to the emergence of the coronavirus and not during a blackout period. The selected funds were chosen with the prior approval of the Board’s ethics official,’ the spokesperson added.
Dallas Fed President Robert Kaplan announced his retirement last month after it was learned that he sold millions of dollars in stock in companies such as Apple, Amazon, and Google
Fed Vice Chair Richard Clarida (left) traded between $1million and $5million out of a bond fund into stock funds one day before Powell issued a statement indicating potential policy action due to the worsening of the COVID-19 pandemic. Boston Fed President Eric Rosengren (right) retired after it was reported that he sold shares of Chevron, Pfizer, Phillips 66, and several real estate investment trusts
Comments made by Fed regional presidents can move markets and they have a hand in the Fed’s interest rate policies.
Such high-placed officials often have exclusive access to discussions about upcoming policy shifts that could benefit or be detrimental to some economic sectors, though they are prohibited from trading on that knowledge and are unable to trade in the period leading up to Fed meetings.
When Powell made the stock sale, then-President Donald Trump was refusing the Fed’s calls for approving more stimulus money to help the ailing economy.
The day after the stock sale, Trump tested positive for COVID-19. He was airlifted to Walter Reed Medical Center, where he spent three days receiving treatment.
Five days after Powell sold his stock options, he gave a speech in which he warned of the dire consequences of the Trump administration’s refusal to green-light stimulus money.
He said that the impact on the economy would be ‘tragic’.
‘The expansion is still far from complete…Too little support would lead to a weak recovery, creating unnecessary hardship,’ Powell said.
That same day, after Powell spoke with Treasury Secretary Steven Mnuchin, Trump tweeted that his administration would not negotiate with Democrats over a stimulus bill and that he would pass a new measure after the election.
Powell sold his shares in early October of last year when talks between the Trump White House and Congress over another stimulus package broke down. Days after Powell sold his shares, then-President Donald Trump was diagnosed with COVID-19. Trump is pictured after he returned to the White House after being hospitalized with COVID-19 at Walter Reed Medical Center on October 5
‘Immediately after I win, we will pass a major stimulus bill,’ Trump tweeted on October 6.
Before the tweet, the Dow Jones Industrial Average was up 200 points in trading on Wall Street. After the tweet, the market tanked. The Dow ended the day down 376 points.
Powell is worth somewhere between $20million and $55million, though those figures are likely too low considering that the markets have been bullish in recent years.
Besides a stock portfolio, his assets include holdings in bond funds that track municipal debt, real estate, and infrastructure.
There are no laws on the books which require Fed officials to place their assets into a blind trust over which they have no control – this despite the fact that they have expert knowledge over the inner workings of the economy.
The Fed’s code of conduct for senior officials states that ‘personal financial dealings should be above reproach, and information obtained by them as officials of the System should never be used for personal gain.’
According to the code of conduct, Fed officials are not permitted to make trades during the ‘blackout period’ – which begins the second Saturday before the Federal Open Market Committee meets and lasting until the Thursday after.
None of Powell’s sales took place during the blackout period, but the October 1 sale was made when the public did not have information as to the Fed’s most recent meeting.
The code of conduct also holds that senior officials ‘should carefully avoid engaging in any financial transaction the timing of which could create the appearance of acting on inside information concerning Federal Reserve deliberations and actions … They should be careful to avoid any dealings or other conduct that might convey even an appearance of conflict between their personal interests, the interests of the System, and the public interest.’
Powell, meanwhile, has come under fire from progressive Senator Elizabeth Warren, the Massachusetts Democrat, who vowed last month not to support his re-nomination as Fed chair because she viewed him as ‘dangerous’ to the economy.
Powell’s term will expire on February 5, 2022, and most analysts say he’s still likely to be renominated and confirmed by the Senate for a second four-year term.
But his future seems less certain than it was in August.
Warren, who was among 13 senators to vote against Powell in 2018 when he was first nominated for the Fed chairmanship by President Donald Trump, is so far the only senator to publicly oppose him this time.
Senator Elizabeth Warren, the Massachusetts Democrat, has said she will oppose Powell’s renomination
Powell has been endorsed by several liberal and moderate Democrats, including Senator Richard Durbin of Illinois and Senator Jon Tester of Montana, and enjoys broad Republican support in Congress.
Still, at a Senate hearing on September 28 on the government’s support for the economy, Warren argued that actions the Powell Fed has taken have weakened bank regulations that Congress passed after the 2008 financial crisis.
‘Over and over, you have acted to make our banking system less safe,’ Warren said.
‘And that makes you a dangerous man to head up the Fed, and that’s why I will oppose your renomination.’
The Powell Fed has revised many bank rules that were established after the 2008 financial crisis — a catastrophe that nearly toppled the financial system and led to huge taxpayer bailouts for the largest US banks.
Groups such as Americans for Financial Reform, a progressive nonprofit, say that, among other steps, Powell has reduced the capital that banks are required to hold to ensure they remain solvent.
They also say that he has weakened the Volcker Rule, which restricts banks from trading with money that is federally insured.