“[W]We did not find evidence to support allegations that you or former Vice President Clarida violated any laws, rules, regulations, or policies related to business activities investigated by our office,” wrote the BIG in a letter to Powell.
The highly anticipated report drew heavy criticism from watchdog groups, Fed pundits and lawmakers who said the findings were too vague and restored little faith that officials could be penalized. for any financial wrongdoing.
Sen. Elizabeth Warren (D-Mass.), who sits on the Senate Banking Committee and has called for tougher Fed ethics rules, tweeted: “This behavior by top economic decision makers should not be brushed aside. carpet.
“We need accountability and stronger ethics rules to end conflicts of interest at the Fed,” she wrote.
In the report, the Fed’s OIG explained how a financial adviser working on behalf of a Powell family trust executed five trades in December 2019 during what is known as the “blackout period,” when Fed officials are banned from a range of financial activities. The report made it clear that the deals were rushed after Powell’s wife asked to make funds available for charitable donations at the end of the year.
The financial adviser later acknowledged that the execution and timing of the transactions was an “omission” and therefore the OIG did not rule that Powell or his family members violated any laws or regulations.
The report comes nine months after the Fed’s inspector general began investigating whether the business activities of senior central bank officials complied with ethical rules and the law. The investigation is still working on its examination of the activities of two other former Fed officials: Eric Rosengren, who headed the Boston Fed, and Robert Kaplan, who headed the Dallas Fed. Both announced their resignations in September.
Fed revises trade rules for top officials amid scrutiny of policymakers’ past behavior
The ethics scandal and its fallout are unfolding as the Fed grapples with other major issues in the economy. New inflation data on Wednesday showed prices jumped 9.1% in June from a year earlier, extending another spike and giving the Fed no assurance that its policies are driving down inflation. inflation. As a result, the Fed’s avenues for avoiding a recession are narrowing as the American public attacks the economy and faces high prices for groceries, gas, rent and everything in between.
Fed says top officials’ business activity is subject to independent review
The review of Clarida’s trading activities began in October after Bloomberg News reported that it purchased shares in February 2020 from an investment fund that held shares. The move came just before the Fed announced it was ready to help the economy as the pandemic began to take hold, restoring confidence in markets.
Attention to Clarida’s dealings intensified months later after The New York Times reported that he had failed to disclose the full extent of his dealings. Months after his initial disclosures, Clarida corrected his public records, showing he withdrew money from an equity fund as the coronavirus spread and markets fell. Then three days later, after the markets fell, Clarida pumped money back into the same fund, just before the Fed announced it was ready to step in and provide further economic support to the financial system.
“Ultimately, the OIG conclusively determined that I did not violate any statute, rule, regulation, or standard,” Clarida said in a statement Thursday. “I have always been committed to conducting myself with integrity and upholding public service obligations, and this report reaffirms that lifelong commitment to exceeding ethical standards.”
Pressure mounts on Fed, Powell over stock trading among top officials as independent probe underway
Experts have other questions about ongoing investigations and said the pressure on Fed officials to meet the highest standards, even beyond the limits of the law, should remain high.
“As to the specific charges and issues, the facts are undisputed,” said Aaron Klein, senior fellow in economic studies at the Brookings Institution. “Clarida made trades and forgot to report them. Powell had this confidence that made trades during the blackout period. the Fed? And where are the conclusions for the presidents of the regional banks of the Fed?
Dennis Kelleher, president and chief executive of Better Markets, which advocates stricter market regulation, said the investigation was “very narrow, omits key information and is not credible”. Kelleher argued that the investigation was never truly independent of the Fed, because the central bank’s inspector general is hired by the president and ultimately reports to him.
“A person like the president asking a subordinate like the IG to investigate his boss is simply not credible, especially where, like here, the boss has already publicly stated on several occasions that no law or rule had been broken,” Kelleher said in a statement. “An after-the-fact investigation by the subordinate finding that the boss’s prior public statements were accurate is not a credible investigation.”
Kaplan’s trading activity included 27 individual stocks, funds or alternative asset holdings, each valued at more than $1 million. Rosengren’s business activities were on a much smaller scale but included interests in four real estate investment trusts, at a time when Rosengren was publicly raising concerns for the commercial real estate industry. His public speeches and remarks often underscored his concerns for the commercial real estate sector as the economy weathered the coronavirus recession.
The scandal has also intensified pressure on Powell to revise internal Fed policies on what kind of financial activities officials can and cannot engage in. The Fed’s own reputation also suffered, leaving Powell to argue with the American public and Congress that the central bank was worthy of the public’s trust.
As part of its Cleanup Act, the Fed announced a major tightening of its ethics rules, which now prohibit the purchase of individual securities, restrict active trading, and speed up the timeliness of reporting and public financial disclosures by regulators. policymakers and senior Fed officials. Senior Fed officials are also only allowed to buy diversified investment vehicles, such as mutual funds.
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