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Officials at the US Federal Reserve wield immense influence over our economy. Last year, the Fed took unusual steps to support the economy and stabilize financial markets during the pandemic by reducing its benchmark short-term interest rate to zero in March 2020. Since then, it has bought bonds. trillions of dollars in treasury and mortgage-backed securities. bonds to maintain long-term interest rates.
One of the results of this action was to make stocks more attractive than bonds to investors.
We now know that in 2020 Robert Kaplan, chairman of the Dallas Federal Reserve, traded millions of dollars in stocks in companies such as Apple, Amazon and Google, while Eric Rosengren, chairman of the Fed of Boston, has traded in stocks and real estate. investment trusts, according to financial disclosure forms.
While such maneuvers certainly do not pass the smell test, it seems that – in what can be described as a startling oversight – they were perfectly legal.
Forget the power of their own words to move the markets. Fed officials know about the economic news sooner than most ordinary investors would have the chance to learn.
So, while claiming that they haven’t done anything that violates the Fed’s rules, Kaplan and Rosengren have pledged to give up their holdings. This came after calls for the Fed to ban the ownership of individual shares by senior Fed officials.
Fed Chairman Jerome Powell called for “a fresh and comprehensive look at the ethical rules regarding holdings and financial activities authorized by senior Fed officials.”
We have already taken a look. What has to come next is a serious toughening of the rules to prevent Fed officials from being able to profit from their influence and the information they receive.
Powell and his team should have no doubts about what is expected of them to make this clear.
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