Amid an outcry over Federal Reserve officials owning and trading individual securities, an in-depth look by CNBC at the officials’ financial disclosures found three that last year had assets of the same type that the Fed itself was buying.
- Boston Fed Chairman Eric Rosengren had between $ 151,000 and $ 800,000 in real estate investment trusts that held mortgage-backed securities. It did as many as 37 different trades across the four REITS, while the Fed bought nearly $ 700 billion worth of MBS.
- Fed Chairman Jerome Powell had between $ 1.25 million and $ 2.5 million of municipal bonds in family trusts that he is said to have no control over. They were only a small part of their reported total assets. While the bonds were bought before 2019, they held up while the Fed bought $ 21.3 billion worth of munis last year, including one from the state of Illinois bought by its family trust in 2016. Among the few bonds the Fed bought in the year Last was one from the state of Illinois.
- Richmond Fed Chairman Thomas Barkin had between $ 1.35 million and $ 3 million in individual corporate bonds purchased before 2020. These include bonds from Pepsi, Home Depot and Eli Lilly. The Fed opened a corporate bond purchase service last year and bought $ 46.5 billion in corporate bonds.
None of these holdings or transactions appeared to violate the Fed’s code of conduct. But they raise questions about the Fed’s conflict of interest policies and oversight of central bank officials.
Among those questions: Should the Fed prohibit officials from holding, buying, and selling the very assets the Fed itself was buying last year when it dramatically expanded the types of assets it would buy in response to the pandemic?
The Fed’s own code of conduct says that officials “must be careful to avoid any treatment or other conduct that may convey even an appearance of conflict between their personal interests, the interests of the system, and the public interest.”
A Fed spokesperson told CNBC that Powell had no say in the Fed’s individual purchases of municipal bonds or investments in his family’s trusts. A Fed ethics official determined that the properties did not violate government rules.
Barkin declined to comment.
Rosengren has announced that he will sell his individual positions and stop trading while he is president. Dallas Fed Chairman Robert Kaplan, who was actively trading millions of dollars in individual stocks, also said he would stop trading and sell his individual positions. But he said his trade did not violate the Fed’s ethics rules.
A Rosengren spokesperson told CNBC that he “ensured that his personal savings and investment transactions complied with what is allowed by the Fed’s ethics rules.”
But Dennis Kelleher, CEO of the nonprofit Better Markets, said that if some of these Fed actions don’t go against the rules, the rules need to change.
“To think that such trade is acceptable because it is supposedly allowed by current Fed policies only highlights that the Fed’s policies are woefully flawed,” Kelleher told CNBC.
While the Rosengren and Kaplan operations took place during the so-called lockdown period, when Fed officials are unable to speak publicly about monetary policy or trade, Kelleher said that during a crisis like last year, “all the year should be considered a blackout period “because Fed officials are constantly talking and making policy in response to fast-moving events.
In response to questions from CNBC posed in the process of our investigation, a Fed spokesperson issued a statement Thursday saying Powell ordered a review last week of the Fed’s ethics rules surrounding “holdings and activities allowed by senior Fed officials. “