Fed sets new limits on policymakers’ investments
WASHINGTON — The Federal Reserve is imposing a broad new set of restrictions on the investments its officials can own, a response to questionable recent trades that forced two top Fed officials to resign.
One of the officials, Eric Rosengren, former head of the Federal Reserve Bank of Boston, invested in funds that held mortgage-backed securities of the same type that the Fed was buying as part of its efforts to hold down longer-term interest rates.
The other official, Robert Kaplan, who was president of the Dallas Fed, made trades of $1 million or more in 22 stocks last year, including Apple, Facebook and Chevron.
Kaplan and Rosengren announced their resignations soon after the questionable trades came to light.
Although the trades complied with Fed financial ethics rules, they occurred while central bank was taking expansive steps to boost the economy and calm financial markets, raising the possibility of conflicts of interest because the two officials could have profited from the Fed’s actions.
In response, the Fed announced Thursday that its policymakers and senior staff would be barred from investing in individual stocks and bonds. They would also have to provide 45 days’ advance notice of any trade and receive prior approval from ethics officials. And they would have to hold the investments for at least a year.
The new rules, which have yet to be implemented, would also require Fed officials to publicly disclose all financial transactions within 30 days, and bar trading during periods of “heightened financial market stress.”
The central bank said it hasn’t yet decided how to define such periods. Nor did it say when the new rules would take effect.
The changes would limit Fed officials to owning diversified investments, such as mutual funds, rather than individual securities.
“These tough new rules raise the bar high in order to assure the public we serve that all of our senior officials maintain a single-minded focus on the public mission of the Federal Reserve,” Chair Jerome Powell said in a statement.
Powell, who is under consideration by the Biden administration for a second four-year term as Fed chair, came under fire last month after the questionable trades by Rosengren and Kaplan were revealed.