The head of the US central bank wants to establish basic rules for private investments by Fed employees.
(Photo: Reuters)
new York The Governor of the US Federal Reserve, Jerome Powell, has ordered a review of the existing ethical rules. The Fed chief is reacting to criticism of multi-million dollar share purchases by regional Fed presidents.
The presidents of the Fed’s branches in Dallas and Boston, Robert Kaplan and Eric Rosengren, had actively traded individual stocks in 2020. This caused outrage because the central bank’s monetary policy also indirectly influences the stock markets. Especially during the pandemic, the Fed played an active role in stabilizing the financial markets with its bond purchases.
Dallas Fed Governor Kaplan, an ex-Goldman Sachs banker, had invested more than a million dollars in individual stocks in 27 cases, including Apple, Amazon, Alibaba, Delta and Tesla. Both Kaplan and Rosengren have already announced that they will sell their holdings and invest in passive mutual funds. However, they had stressed that their share purchases were always approved by the supervisory authorities of their regional offices.
Powell wants to regulate private investments of the Fed managers in the future. The Fed wants to take a “fresh and comprehensive look at the ethical rules on permitted financial holdings and activities of Fed managers,” a spokesman told CNBC. Powell ordered this test “because the trust of American citizens is essential for the Federal Reserve to carry out its important mission effectively”.
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Democratic, finance-savvy Senator Elizabeth Warren has sent twelve letters to the Fed’s regional offices. She demands that senior Fed employees are not allowed to hold or trade individual stocks.
There are twelve regional Fed central banks in the United States. Five of the twelve presidents also sit with the seven Fed governors on the Federal Open Market Committee. This is where the main open market decisions are made. The shareholders of the twelve Fed offshoots are the private member banks. This membership is in turn stipulated by law from a certain size. The regional banks are supposed to put the monetary policy into practice.
With the outbreak of the corona crisis, the Fed massively expanded its monetary policy support for the economy. The key rate is still at the zero line. The Fed also buys $ 120 billion worth of bonds and mortgages every month.
The flood of cheap money is also propping up stock prices: the major indexes on Wall Street are still very close to their record levels despite the recent setbacks. The broad-based S&P 500 index has doubled since its corona low.
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