Fed watchdog to investigate financial transactions of officials | Economic news

By CHRISTOPHER RUGABER, economic editor of the AP

WASHINGTON (AP) – An independent investigator will examine whether Federal Reserve officials broke the law with financial transactions last year that came under scrutiny from Congress and fierce criticism from outside the central bank.

The Federal Reserve’s Office of Inspector General will investigate “whether the business activity of certain senior officials complied with both relevant ethics rules and the law,” the Fed said on Monday. The Inspector General is an independent body.

“We welcome this review,” the central bank said, “and will accept and take appropriate action based on its findings.”

Last week, Federal Reserve regional bank chairmen Robert Kaplan and Eric Rosengren resigned following revelations they had engaged in intensive trading in 2020. The trading took place as the Fed cut its short-term interest rate to near zero and bought billions of dollars. dollars of bonds to stabilize financial markets and stimulate the economy in the first weeks of the pandemic. The two bank presidents could potentially benefit financially from these actions.

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Kaplan, the former chairman of the Dallas Federal Reserve and former partner of Goldman Sachs, traded millions of dollars in shares in 22 companies last year, including Apple, Facebook and Chevron. Rosengren, former chairman of the Boston Fed, invested in real estate funds that held mortgage-backed bonds of the same type that the Fed itself began buying last year.

Bloomberg News reported on Friday that Fed Vice Chairman Richard Clarida sold between $ 1 million and $ 5 million in shares of one bond fund and bought shares of two equity funds on February 27, 2020, according to financial disclosure forms that only give dollar amounts. ranges. The transactions took place a day before the Fed issued a statement saying it was “closely monitoring” the emerging pandemic and its economic impact. The Fed lowered its key rate a few days later.

Earlier Monday, Democratic Senator Elizabeth Warren urged the Securities and Exchange Commission to investigate the investments of the three officials and determine whether they broke insider trading rules.

“Reports of this financial activity by Fed officials raise serious questions about possible conflicts of interest and reveal a contempt for public confidence,” the Massachusetts senator wrote. “They also reflect the atrocious judgment of these officials. “

Rosengren and Kaplan both said their transactions did not violate Fed rules. Yet the Fed’s ethical guidelines, which are similar to those of other government officials, restrict exchanges that reveal a conflict of interest. Clarida has not commented on her transactions.

All three officials participated in the Fed’s debates on whether to raise or lower interest rates or take other measures to influence the economy. They have also had access to a huge amount of data tracked and analyzed by Fed economists, and their public comments can shake the markets.

Clarida was appointed to the Fed by President Donald Trump in 2018. Prior to that, he worked for 12 years at PIMCO, an investment management firm specializing in fixed income securities. He was promoted to CEO of PIMCO in 2015. Rosengren has spent most of his career at the Boston Fed.

Fed Chairman Jerome Powell told a congressional hearing last week that Rosengren and Kaplan’s transactions appeared to be “in accordance with existing rules,” which “just tells you that the problem is that the rules , practices and disclosure need to be improved and that’s what we’re working on.

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