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The Fed will change trading rules for officials to keep public’s trust after controversy, Powell says

Federal Reserve Chairman Jerome Powell on Wednesday said the central bank’s current trading rules are insufficient and promised it would “make changes” after filings showed that officials traded stocks and bonds that could be influenced by its policy actions.

Powell added he was not aware of the now-controversial trades made by Dallas Fed President Robert Kaplan and Boston Fed President Eric Rosengren in 2020 prior to media reports over the past month.

“We understand very well that the trust of the American people is essential for us to effectively carry out our mission. And that’s why I directed the Fed to begin a comprehensive review of the ethics rules around permissible financial holdings and activity by Fed officials,” he said.

The central bank’s current rules are “now clearly seen as not adequate to the task of really sustaining the public’s trust in us,” he added. “We need to make changes and we’re going to do that as a consequence of this. This will be a thorough-going and comprehensive review. We’re going to gather all the facts and look at ways to further tighten our rules and standards.”

Powell said that Fed officials should as a general rule be barred from owning assets that the central bank buys as part of its regular asset purchases and emergency liquidity measures. Asked by CNBC’s Steve Liesman if the Fed knows when its review will be complete, Powell said there is no set timeline.

“I want to be able to look back on this years from now and know that we rose to meet this challenge,” he said.

Two weeks ago, financial disclosures filed by the Fed’s 12 regional bank presidents revealed some had traded frequently throughout 2020, while others held million-dollar positions without material changes to their portfolios.

The Fed on Thursday said Chairman Jerome Powell had ordered a “fresh and comprehensive look at the ethics rules around permissible financial holdings and activities by senior Fed officials.”

Annual portfolio disclosures released over the past month showed that Kaplan made multiple trades worth $1 million or more in 2020 in individual stocks including Apple, Amazon and Delta Air Lines.

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Rosengren also came under scrutiny after it was revealed he held financial interests in four real estate investment trusts and made several purchases and sales of similar property-owning vehicles.

He also held stock in Pfizer, Chevron and AT&T with most of his investments worth tens to hundreds of thousands of dollars.

Filings from Richmond Fed President Thomas Barkin, disclosed little to no trading activity but several financial holdings in excess of $1 million.

Regional Fed banks are part of the broad Federal Reserve System, but are fairly autonomous.

Each operates within a specific geographic area, is separately incorporated and has its own board of directors. As such, each regional bank has its own code of conduct.

The Dallas Federal Reserve Bank’s code of conduct notes that: “An employee is prohibited from using non-public information for any purpose other than Bank business. In addition, an employee may not engage, directly or indirectly, in any financial transaction as a result of, or in reliance on, non-public information, whether such information relates to the Bank or any other person or institution.”

Further, “An employee with knowledge of Class I FOMC information should 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.”


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