Fed officials, including Federal Reserve Chairman Jerome Powell, held bonds to be purchased by the Fed. Conflicts of interests and moral issues couldn’t be avoided.
In an earlier report, it was reported that Chairman Powell had ordered an investigation after learning that Federal Bank of Dallas Governor Robert Kaplan and others had traded stocks extensively.
CNBC reported on the 17th (local time) that three senior Fed officials, including Chairman Powell, held and traded bonds the Fed intended to purchase last year.
According to CNBC, their holding or trading of bonds didn’t violate Fed regulations, but a conflict of interest would be inevitable.
Personal financial transaction data submitted by Chairman Powell and others revealed conflicts of interest for Powell himself, Eric Rosengren, president of the Federal Reserve Bank of Boston, and Thomas Barkin, president of the Federal Bank of Richmond.
Powell held between $1.25 million and $2.5 million in municipal bonds through his family trust account last year. He said he did not manage them; CNBC said the amount was small compared to the family’s fortune.
These bonds, while purchased prior to 2019, were included in the Fed’s bond purchases last year, which began when the Fed introduced unlimited quantitative easing (QE) to mitigate the impact of the COVID-19 pandemic.
The Fed purchased $21.3 billion worth of municipal bonds last year, including Illinois bonds bought by the Powell Family Trust in 2016.
Rosengren owns real estate investment trusts (REITs) worth between $151,000 and $800,000 that hold mortgage-backed securities (MBS).
While the Fed bought about $700 billion in MBS, he traded four REITs up to 37 times.
Barkin Richmond, president of the Federal Reserve, owns between $1.35 million and $3 million worth of private company bonds. These were purchased before 2020.
Also included are corporate bonds that the Fed purchased through primary dealers such as Pepsi, Home Depot, and Eli Lilly.
For the first time ever, the Fed purchased $46.5 billion in corporate bonds last year.
Powell and Rosengren refused to comment on the reports, CNBC reported, but Barkin said he would sell all of his bonds and not trade while governor.
In response to reports that he was trading in multi-million dollar stocks, Federal Bank of Dallas Governor Kaplan has announced that he will no longer trade stocks and will liquidate his holdings. He added, however, that he did not violate the Fed’s integrity rules.
Denise Keller, executive director of Better Markets, a nonprofit organization, says the rules should be changed if the Fed officials’ actions do not violate the rules.
Hardliners, including Senator Elizabeth Warren (Democrat, Massachusetts), dubbed “Wall Street Reaper,” discuss Powell’s replacement, while the moral question has surfaced this time, and Powell’s reappointment as Fed chairman next year is in jeopardy.