Federal Reserve Members Say They Will Stop Trading S&P Futures, Stocks, As Pandemic Crisis Trades Revealed

Federal Reserve Members Say They Will Stop Trading S&P Futures, Stocks, As Pandemic Crisis Trades Revealed

Federal Reserve

Left: Robert Kaplan, Federal Reserve Bank of Dallas president (left) speaks at the Council on Foreign Relations, in New York, May 31, 2017. (AP Photo/Richard Drew). Right: Eric Rosengren, president and CEO of the Federal Reserve Bank of Boston, in Chelsea, Mass., Oct. 16, 2014. (AP Photo/Michael Dwyer)

The presidents of two Federal Reserve banks said they will sell their personal stock holdings by Sept. 30 and will not trade stock for the remainder of their tenure to avoid the appearance of a conflict of interest. Both were criticized on Twitter for trading during a year when they were creating sweeping U.S. economic policies in response to the covid-19 pandemic.

All 12 regional Fed presidents filed annual financial disclosures in August. The trading activity of Boston Fed President Eric Rosengren and Dallas Fed President Robert Kaplan drew particular criticism at a time when the Fed is already under fire for monetary policies that helped raise asset prices and disproportionately benefited the rich during the covid-19 pandemic, Bloomberg reported.

The stock sales were reported by Wall Street Journal reporter Michael S. Derby on Twitter.

Kaplan revealed multiple million-dollar trades in individual stocks in 2020 including Apple, Amazon and Delta Airlines. He owned 32 individual stock, fund or alternative asset holdings including 27 valued at more than $1 million at the end of 2020, according to the disclosure, CNBC reported.

Rosengren and Kaplan released almost-identical statements Thursday after their most recent financial disclosure documents showed active trading in a range of investments.

Both said they had complied with the Federal Reserve ethics rules but planned to invest the proceeds of their sales in diversified index funds or hold them in cash. “I have decided to address even the appearance of any conflict of interest by taking (these) steps,” Rosengren said. 

“Central Bankers trading stocks – Why in the name of God´s green earth did it take a public shaming on Twitter to inflict common sense?” tweeted Lawrence McDonald, a New York Times bestselling author, former head of U.S. macro strategy at Societe Generale and former vice-president of distress debt and convertible securities trading at Lehman Brothers.

The U.S. central bank cut interest rates to zero in March 2020, early in the pandemic, and started buying hundreds of billions of dollars of Treasuries and mortgage-backed securities to calm fears in financial markets. It is still buying $80 billion in Treasuries and $40 billion in mortgage-backed securities every month.

While Kaplan and Rosengren’s trades appeared to comply with Fed rules, the central bank’s role in the economy has broadened since its ethics rules were written decades ago, the New York Times reported. “What we have now is an ethics system built on a very narrow conception of what a central bank is and should be,” Peter Conti-Brown, a Fed historian at the University of Pennsylvania, told the New York Times.

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The optics are not good, said Mark Spindel, chief investment officer of Potomac River Capital in Washington, in a Bloomberg report. “At a time when they are being roundly criticized and to the extent to which the policies have made the rich richer, you need to question the optics of what these guys were doing. It doesn’t shed positive light on them.”

Federal Reserve members are not alone among government officials taking heat for trading in stocks that raise questions about possible access to insider information. House Speaker Nancy Pelosi’s husband Paul trades stocks in big tech Silicon Valley companies. The Pelosis have a net worth of as much as $315.7 million, much of it tied up in real estate, according to her 2020 annual financial disclosure, filed on Aug. 13 by the Clerk of the House. This has helped make Rep. Pelosi (D-Ca) the sixth wealthiest member of Congress, according to a 2020 analysis by OpenSecrets.

“The Fed Members & the Pelosi family openly trade stocks while they influence the rules on the monopoly board. This goes to the heart of why America is so ‘wobbly.’ America is going to need people to ‘believe’ towards the end but the trust will be SPENT,” tweeted The Moguldom Nation founder and CEO Jamarlin Martin.