US Federal Reserve Chair Jerome Powell’s review of internal rules around investments by policymakers is a move in the right direction, but will not stem pressure for more accountability at the US central bank.
“It’s about time,” Roberto Perli, a partner at Cornerstone Macro LLC, said of a Fed statement on Thursday that Powell had ordered a “fresh and comprehensive” study of the ethics rules around permissible financial holdings and activities by senior Fed officials.
“The impression that it gives about the institution is just poor. So yes, it should be changed,” he said.
Photo: Reuters
Powell’s move followed revelations last week over investments and trading by two of the central bank’s regional bank presidents. Their actions were criticized for potential conflict of interest at a time when the Fed is under fire for emergency COVID-19 pandemic policies that critics say have elevated stock prices and benefited the wealthy.
Boston Fed President Eric Rosengren and Dallas’ Robert Kaplan on Thursday last week said that they would sell their individual stock holdings by Sept. 30.
Both said that their transactions complied with Fed ethics rules and that they were acting to avoid even the appearance of a conflict of interest.
Critics said the situation should never have arisen in the first place.
“I fear that the Kaplan and Rosengren trades have undermined the Fed’s policy legitimacy, something vital to its ability to succeed at its legislative mandates,” said Peter Conti-Brown, a University of Pennsylvania Wharton School professor of legal studies. “An ethics review is a good start. It cannot be the end.”
The considerable wealth of some US policymakers highlighted in their financial disclosures was also seen as an issue by Benjamin Dulchin, director of the Fed Up campaign at the Center for Popular Democracy.
“The bigger problem is how asset-wealthy the majority of the Fed’s leaders are, and how that creates a natural assumption for them that what’s good for Wall Street is good for the country,” he said. “The Fed can’t prohibit wealthy people from serving in Fed leadership, but the Fed absolutely can implement policies to make their leadership more diverse.”
Greater diversity among top central bankers is a key demand of progressives as US President Joe Biden weighs whether to give Powell — wealthy and white — another four years when his term as Fed chair expires in February.
Critics also focused on the complex nature of the central bank’s structure.
US Senator Elizabeth Warren said in a statement on Thursday that she had written to all 12 regional Fed bosses to urge them to adopt a self-imposed ban on the ownership and trading in individual stocks by senior Fed officials and that they act “within 60 days.”
The role of the regional Fed directors was also under scrutiny. Periodic efforts to revamp the Fed system have a long history in Washington, but rarely get far.
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