Fed officials violated ethics rules with trading, Powell says

Senior Federal Reserve officials violated the central bank’s prohibition of stock trading that may appear improper, even if specific guidelines weren’t broken, Chair Jerome Powell said.

“We didn’t imagine the problems that happened,” Powell said in a press briefing Wednesday. “They may have actually been, I don’t know this, but they have actually been in compliance with the specifics of our rules. They were clearly not in compliance with the part of our rules that said don’t do anything that would create a bad appearance. That’s clear this was a bad appearance.”

The Fed announced last month it will ban senior officials from buying individual stocks and bonds as well as limit active trading after embarrassing revelations that contributed to two top officials stepping down. Powell said the rule changes were necessary to show officials have “a single-minded focus on the public mission of the Federal Reserve.”

Al Drago/Bloomberg

Dallas Fed President Robert Kaplan and Boston’s Eric Rosengren both announced their early departures following disclosure of unusual trading during 2020. Rosengren cited a chronic illness in announcing his early retirement.

The trading scandal has modestly hurt Powell’s chances for renomination, according to economists surveyed by Bloomberg News. President Biden said Tuesday he would announce his choice for chair and other openings “fairly quickly.”

The Fed said last month that its watchdog would open an investigation into trading activity by senior U.S. central bank officials.

Sen. Elizabeth Warren, among Powell’s most vocal opponents, has asked the Securities Exchange Commission to look into whether any insider-trading rules were breached by Fed officials. Critics also seized on Powell’s own 2020 financial disclosure — showing he sold between $1 million and $5 million in a broad-based stock index fund last October — to question keeping him at the helm of the central bank.

Some Senate Democrats, including Senate Banking Committee Chairman Sherrod Brown, have introduced legislation that would make it illegal for Fed officials to trade individual stocks.