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Federal Reserve Chairman Jerome Powell testifies before a Senate Banking, Housing and Urban Affairs Committee hearing on “The Semiannual Monetary Policy Report to the Congress” on Capitol Hill in Washington, July 15, 2021.

Kevin Lamarque | Reuters

Federal Reserve Chairman Jerome Powell last week directed staff to review the central bank’s ethics rules around appropriate financial activities after filings showed a senior central bank official made multiple multimillion-dollar stock trades in 2020, while others held significant investments.

Documents released last week revealed that Dallas Fed President Robert Kaplan made multiple trades worth $1 million or more last year in individual stocks including Apple, Amazon and Delta Airlines.

Richmond Fed President Thomas Barkin, a former senior executive at consulting firm McKinsey & Co., disclosed financial holdings each in excess of $1 million.

According to documents, Eric Rosengren, Boston Fed President held stakes at four real estate investment trusts. Additionally, he purchased and sold similar properties-owning entities. He also held stock in Pfizer, Chevron and AT&T. His investment amounts ranged from tens to hundreds, of thousands of dollars.

The Fed’s self-dealing could be problematic for an institution that is charged with impartial supervision of U.S. inflation and employment.

“Because the trust of the American people is essential for the Federal Reserve to effectively carry out our important mission, Chair Powell late last week directed Board staff to take a fresh and comprehensive look at the ethics rules around permissible financial holdings and activities by senior Fed officials,” a Fed spokesperson told CNBC.

The Fed spokesperson said that this review “will assist in identifying opportunities to further tighten these standards and rules.” The Board will adopt any necessary changes and all such changes will be included in the Reserve Bank Code of Conduct.

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The trades quickly came under scrutiny given the Fed’s critical role in managing the U.S. economy as well as its influence over interest rates and liquidity markets. The Fed’s influence in 2020 was magnified by the Covid-19 pandemic, and its subsequent recession. With the approval of the Treasury Department, Congress gives the Fed the authority to take on an array of emergency lending actions to provide cash to the economy in times of crisis.

Rosengren, Kaplan and other Fed officials are the presidents for two of the Fed’s twelve regional banks. Each regional bank president serves as a member of the Federal Open Market Committee, which sets the Fed’s rates policy. This is the Fed policymaking body.

Both Rosengren and Kaplan have decided to part ways with their respective stockholdings amid public outrage.

Robert Kaplan at Jackson Hole, Wyoming

David A. Grogan | CNBC

News of Powell’s inquiry came as Sen. Elizabeth Warren, D-Mass., sent 12 letters to the Fed’s regional bank presidents demanding stricter ethics from the nation’s top central bank officials.

Warren demanded that Fed Presidents ban individual stock trading and ownership by high-ranking officials in each region office. All of the letters, which were all sent Sept. 15, were identical except that addressed to Rosengren and Kaplan.

Warren sent her letter to Kaplan stating that the Fed had taken extraordinary measures to deal with the financial and economic risks from the COVID-19 pandemic. She also wrote that Eric Rosengren and she made large trades in stocks and trusts.

This trading has raised questions about conflict of interest between officials at high levels with wide-reaching policymaking authority and exceptional access to data about the economy.

In the United States’ recovery from the most severe coronavirus recession, the Fed was a key player.

According to economists, the Fed’s political independence enabled it to act faster than Congress. Its monthly purchases of $120 million in U.S. bonds and mortgage-backed securities supported countless companies that suffered a severe recession last year.

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