Warren asks SEC to probe trading by US central bank officials

Senator Elizabeth Warren called on the Securities and Exchange Commission to investigate whether stock transactions by top Federal Reserve officials violated insider trading rules.

“The reports of this financial activity by Fed officials raise serious questions about possible conflicts of interest and reveal a disregard for the public trust,” the Massachusetts Democrat wrote in a letter to SEC Chairman Gary Gensler. “They also reflect atrocious judgement by these officials, and an attitude that personal profiteering is more important than the American people’s confidence in the Fed.”

Warren cited a Bloomberg News report on Friday that Fed Vice Chair Richard Clarida’s 2020 financial disclosures show he traded between $1 million and $5 million out of a bond fund into stock funds one day before Chair Jerome Powell issued a statement flagging possible policy action as the pandemic worsened. Two regional Fed chiefs recently announced their departures following revelations about their trading activity last year.

An SEC spokeswoman declined to comment on Warren’s letter, as did a Fed spokeswoman.

Speaking on Clarida’s behalf, a Fed spokesman said in an Oct. 1 statement that the transactions, which were released in mid-May, were a “pre-planned rebalancing to his accounts, similar to a rebalancing he did and reported in April 2019” and were “executed prior to his involvement in deliberations on Federal Reserve actions to respond to the emergence of the coronavirus and not during a blackout period.”

Late February 2020 was a time of extreme moves in financial markets as investors encountered the threat of the pandemic spreading across the U.S. In the six days leading up to Feb. 27, the S&P 500 index fell more than 10% from a then-record high. At the same, time the bond markets were in a powerful rally with yields on U.S. 2-year notes plunging as traders began to anticipate a rate cut from the Fed.

“There is no justifiable ethics or financial rationale for him or any other government official to be involved in these questionable market machinations while having access to non-public information and authority over decisions that have extraordinary impacts on markets and the economy,” Warren said.

Dallas Fed President Robert Kaplan and Boston’s Eric Rosengren announced Sept. 27 that they were stepping down after their trading activity last year drew scrutiny. Rosengren cited a long-standing and worsening health condition in explaining his early retirement.

Kaplan disclosed multiple trades of over $1 million during 2020. Rosengren transacted in real estate investment trusts, including some that invested in mortgage-securities that the Fed started buying in 2020, which also raised questions.

The Fed spells out clear guidelines for trading activity by policy makers. Its Voluntary Guide to Conduct for Senior Officials says “they should carefully avoid engaging in any financial transaction the timing of which could create the appearance of acting on inside information concerning Federal Reserve deliberations and actions.”

Powell has announced a review of the policies with the intention of tightening them. He said at a press conference last month that existing guidelines are “not adequate to the task of sustaining the public’s trust.”