With its interest rate decisions and its purchases on the bond market, the Fed has an indirect influence on share prices.
(Photo: Bloomberg)
new York For Fed Governor Jerome Powell, the latest stock scandal is extremely inconvenient: his term of office is about to be extended. It is now known that several local Fed presidents have bought shares worth millions in the middle of the corona crisis. That does not shed a good light on the independence of the Fed.
No wonder that Powell wants to take action in this situation and have the ethical rules of the American central bank reviewed. It is high time for the new rules.
While Powell under Donald Trump had to be accused for a long time before Corona of not being loose enough in monetary policy, he is now being accused from the left of only keeping an eye on the welfare of the capital markets. Powell is not in an easy position. If it now becomes clear that the regional Fed presidents in Dallas and Boston benefited from the loose Fed policy through their multi-million dollar share purchases during the crisis, that gives his critics even more fodder.
With its interest rate decisions and its purchases on the bond market, the Fed has an indirect influence on share prices. Share prices rise when interest rates are low. Added to this are the massive acquisitions on the bond and mortgage market, which support the economy and thus also the stock markets.
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New rules that prohibit Fed employees and presidents from actively trading stocks are urgently needed. It is absurd that these rules haven’t been around for a long time – in a country where business journalists, SEC employees and other professional groups are already not allowed to hold individual titles so that they do not lose their independence. It is incomprehensible that, of all things, the most powerful switching point in the financial market was exempted from this.
The recent scandal could cost Powell his re-election. The prominent Democrat Alexandria Ocasio-Cortez from the left wing of the party has long been calling for his replacement. And in Elizabeth Warren, he has another highly adept financial critic.
Powell has a supporter in the government in his predecessor and acting Secretary of the Treasury, Janet Yellen. But as a former Fed governor, she will probably hold back on the subject if she does not want to get caught up in the vortex herself. For Powell, the share purchases could become a personal matter of fate.
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