Powell says Fed to revamp its trading rules

WASHINGTON — Federal Reserve Chair Jerome Powell announced that the central bank will overhaul its financial ethics policies in response to growing questions about investing and trading decisions by high-ranking Fed officials that raise potential conflicts of interest.

“It is now clearly seen as not adequate in sustaining the public’s trust,” Powell said Wednesday at a news conference after the Fed’s interest-rate setting committee ended a two-day policy meeting. “We need to make changes, and we’re going to do that as a consequence of this.”

Powell stopped short of saying explicitly that the trading moves made by the Fed officials were inappropriate. And he offered few details about what the Fed might do or how it would conduct its ethics review.

The issue arose after it was revealed that Robert Kaplan, president of the Federal Reserve Bank of Dallas, traded millions of dollars’ worth of individual stocks such as Amazon, Chevron, Facebook and Johnson & Johnson in 2020, at the same time that the Fed was taking extraordinary measures to boost the economy. The Fed’s moves likely lifted stock prices and other financial assets.

Similar financial disclosures showed that Eric Rosengren, president of the Boston Fed, invested last year in real estate investment trusts that held mortgage-backed bonds of the type the Fed itself is buying as part of its broad efforts to lower borrowing rates.

And Powell himself owns municipal bonds, which the Fed bought last year for the first time ever to prevent a collapse in the muni bond market, a move that could have driven up the value of such bonds.

Dennis Kelleher, president of Better Markets, a watchdog group, suggested that Powell’s comments fell far short of what is needed to reassure the public. He also criticized Powell’s remark that the Fed follows ethics rules similar to those of other government agencies that, for example, bar trades made with inside information.

“The Fed is not like other agencies,” Kelleher asserted.