The Fed will impose rules restricting stock and bond trading by top officials
The Federal Reserve on Thursday announced what it said was a “broad set” of new rules that will prohibit the investment activity of top officials and senior staff.
As a result of the new rules, top Fed officials will be limited to purchasing diversified investment vehicles like mutual funds. The rules will prohibit the officials from purchasing individual stocks, holding investments in individual bonds and holding investments in agency securities.
There will be a one-year holding requirements and officials will generally have to provide 45 days advance notice for purchases and sales.
A senior Fed official said there was strong support for the rules. The official said a rule to mandate officials put investments in blind trusts was considered but rejected.
The rules will cover the presidents of the 12 Fed Reserve banks as well as the seven-member board of governors.
“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,” said Fed Chairman Jerome Powell in a statement.
The Fed has been on the defensive since the Wall Street Journal and Bloomberg uncovered that two Fed officials, Dallas Fed President Rob Kaplan and Boston Fed President Eric Rosengren, were active traders in 2020 at the same time the central bank was providing massive support to the economy in the wake of the coronavirus pandemic. Kaplan resigned in the wake of the disclosure while Rosengren left office for health reasons.
Sen. Elizabeth Warren, Democrat of Massachusetts, has called for the Securities and Exchange Commission to review the trading activity. Fed officials receive vast, private, information about the health of the U.S. economy.
Advocates of reform of the Fed have also pointed to investment decision by Fed Vice Chair Richard Clarida and Powell as examples of the need for reform.