Boston Fed to Release Documents on Former President’s Transactions

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US Federal Reserve Chairman Jerome Powell and Boston Fed Chairman Eric Rosengren attend a presentation in East Hartford, Connecticut, United States, November 25, 2019. REUTERS / Brendan McDermid

WASHINGTON, Oct.20 (Reuters) – The Boston Federal Reserve will not release documents that could show whether its former chairman controlled a spate of personal investments last year with his ethics executive, a spokesperson said. word of the Fed’s regional bank, a key point in an ongoing ethical controversy at the US central bank.

Eric Rosengren, along with Dallas Fed Chairman Robert Kaplan, resigned after details of their trading activities in 2020 were reported in the media last month, raising questions about whether the rules of the Fed policy makers’ financial investments are strict enough given their market-sensitive roles.

Their investing activities and those of other senior Fed officials, including President Jerome Powell, in a year in which the central bank provided an unprecedented response to the economic threat posed by the coronavirus pandemic, have erupted into a full-fledged controversy that could weigh in on whether Powell is reappointed as Fed chief.

In a statement issued shortly after the initial reports, Rosengren said he would sell the securities in question, including shares of real estate investment trusts, the value of which could be influenced by Fed policy decisions. Rosengren also said the investments “were permitted under the Fed’s ethics rules for asset types and time frames for transactions.”

Responding to a Reuters request for any documents from the attorney general or the Boston Fed’s ethics official underlying this comment, a spokesperson for the regional bank sent an emailed statement on Tuesday that has postponed a broad review of the Fed’s ethics rules launched by Powell last month.

“We will not be able to provide internal communications of this nature,” the statement said. “The president has called for revisions to the ethics rules and frameworks. We welcome them and will cooperate fully – and will not publicly address the details so that these revisions take place fully, without bias or distraction.”

Reuters requested similar documents from the Dallas Fed as well as the Fed’s Board of Governors – the group of officials that oversees the entire U.S. central banking system. A spokesperson for the Dallas Fed said the request had been forwarded to the regional bank’s general counsel. There has not yet been a response to the request filed with the Fed’s Board of Governors under the federal Freedom of Information Act.

The Fed’s 12 regional banks are quasi-private entities not governed by the Freedom of Information Act and can be selective about what documents they make public. Republican US Senator Steve Daines pointedly asked Powell about this issue during a recent congressional hearing.

Other prominent lawmakers, including Senate Banking Committee Chairman Sherrod Brown, a Democrat, are considering introducing legislation restricting the ownership by Fed officials of individual company shares. Democratic Senator Elizabeth Warren has called on securities regulators to investigate the transactions and demanded an ethical overhaul of regional Fed banks.

In a September 20 letter to Warren, St. Louis Fed Chairman James Bullard, writing on behalf of all of the Fed’s regional banks, said they would comply with any new directions emerging from the powell review. Read more

THE FUTURE OF POWELL

The ethical controversy has become an issue for Powell as he waits to see whether President Joe Biden will appoint him for a second four-year term as Fed chief when his current term expires in February.

Reports on some of Powell’s own deals last year have highlighted the potential reputational damage the central bank now faces as controversy continues. In Powell’s case, that involved between $ 1 million and $ 5 million in proceeds from the sale of a stock index fund days before he gave a political speech. In the forms that Fed governors file annually with the United States Office of Government Ethics, the values ​​of holdings and transactions are only recorded in broad categories, so the exact amount of the sale not known.

A Fed spokesperson said the sale and six smaller ones that year were to cover expenses for Powell’s family.

From a personal finance perspective, it was a bad decision. The fund, the Vanguard Total Stock Market Index Fund, which tracks the entire U.S. stock market, has risen more than 30% since Powell sold it.

But, as with Rosengren and Kaplan, the context has become as important as the details. Their transactions took place during a year of enormous economic uncertainty and the Fed’s hyperactivity in response, actions that have had a huge influence on both the economy and financial markets.

In Powell’s case, the apparent liquidation of his stake in the Vanguard fund – his annual disclosure for 2020 effectively shows no ownership at the end of this year – came with the US unemployment rate at a high 7.8. %, the first rounds of pandemic aid is expiring and no COVID-19 vaccine in sight.

Powell has clearly been a favorite for renomination, and still can be. The online political betting market PredictIt.org, where the pace of transactions has increased since the emergence of the ethics controversy, suggests a roughly 70% chance that he will be renamed for the position. But that’s down from 90% just before the case arose.

In addition to discussions around Powell’s handling of monetary policy and banking regulation – the substance of his work – he now faces what Fed historian Peter Conti-Brown has called a “crisis of legitimacy. “.

“There should be a very clear line rule that no central banker, or frankly any Fed employee with access to (the Federal Open Market Committee) deliberations, can be an active participant in the market, ”Conti-Brown said in a podcast. with David Beckworth, Principal Investigator at the Mercatus Center at George Mason University. “I would prefer central bankers to buy structured products that rebalance themselves by algorithm. So there is no human discretion involved.”

Reporting by Howard Schneider; Editing by Dan Burns and Paul Simao

Our Standards: Thomson Reuters Trust Principles.


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