(Editor’s Note: This story has been updated to reflect new information. Fed Chairman Powell held the communal bonds in question in a joint account over which he had control. Due to incorrect information from the Federal Reserve, CNBC initially reported that Powell had the munis in a family foundation over which he had no control.)
Amid an outcry over Federal Reserve officials owning and trading individual securities, an in-depth look from CNBC on officials’ financial statements found that three last year held assets of the same type that the Fed itself bought, including Chairman Jerome Powell .
None of these holdings or transactions appeared to violate the Fed’s code of conduct. But they do raise more questions about the Fed’s conflict of interest policy and oversight of central bank officials.
- Powell held municipal bonds between $ 1.25 million and $ 2.5 million. They were only a small fraction of his total reported assets. While the bonds were bought before 2019, they were held, while the Fed raised more than $ 5 billion last year.
- Boston Fed President Eric Rosengren held between $ 151,000 and $ 800,000 in real estate investment trusts that owned mortgage-backed securities. He made up to 37 separate trades in the four REITS while the Fed bought nearly $ 700 billion in MBS.
- Richmond Fed President Thomas Barkin held individual corporate bonds of $ 1.35 to $ 3 million that were purchased prior to 2020. These include bonds from Pepsi, Home Depot, and Eli Lilly. The Fed opened a corporate bond purchase facility last year and bought corporate bonds worth $ 46.5 billion.
Among these questions: Should the Fed have banned officials from holding, buying and selling the same assets that the Fed bought itself last year when it dramatically increased the types of assets it would buy in response to the pandemic has expanded?
The Fed’s own code of conduct states that officials “should be careful to avoid doing business or any other conduct that may even create the appearance of a conflict between their personal interests, the interests of the system and the public interest.”
In response to CNBC questions posed as part of our research, a Fed spokesman released a statement Thursday saying that Powell had last week a review of the Fed’s ethical rules on “permitted financial holdings and activities by senior Fed officials. Officials ”.
A Fed spokesman told CNBC that Powell has no say in the individual purchases of central bank municipal bonds, but that the bonds are held in a joint account over which he has control. He decided not to trade Muni bonds in 2019.
Barkin declined to comment but appeared to have no say in the individual corporate bonds the Fed bought.
Rosengren has announced that it will sell its individual positions and cease trading while he is president. Dallas Fed President 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 trading does not violate the Fed’s ethical rules.
A Rosengren spokesman told CNBC that he had “made sure that his personal savings and investment transactions were in accordance with what was allowed under the Fed’s ethical rules.”
But Dennis Kelleher, CEO of the nonprofit Better Markets, said if some of those Fed actions don’t break the rules, the rules need to be changed.
“To think that such a deal is acceptable because it is supposedly allowed by current Fed policies only underscores that Fed policies are pathetically flawed,” Kelleher told CNBC.
While Rosengren and Kaplan’s trading was not conducted during the so-called blackout period, when Fed officials are not allowed to speak publicly about monetary policy or trade, Kelleher said during a crisis like last year: “The whole year should be viewed as a blackout Period “because Fed officials are constantly talking and drawing up their policies in response to fast-paced events.
Correction: The Fed itself bought $ 5-6 billion in municipal securities last year. The previous number used in the story incorrectly included money that came from the Treasury that was used to cushion losses.