Jerome Powell says the Fed is reviewing its trading rules.


A Fed spokesperson said the Fed’s ethics rules were in line with those followed by most government agencies and, in some cases, more stringent. But given the Fed’s special role in finance, many have questioned whether it should have more stringent requirements.

Fed officials tend to be savvy economists and bankers themselves, and their comments can have a disproportionate impact on financial markets. The central bank has also assumed an increasingly broad role: last year it saved or helped the short-term corporate debt market, the long-term corporate debt market, the market municipal bonds and money market mutual funds.

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This raises questions about what kind of titles its officials should be allowed to hold. Mr Powell, for example, was heavily invested in index funds and municipal debt last year, based on his own disclosures. Its holdings of municipal bonds had not been widely criticized in recent years, but they have received negative attention in recent days because the Fed helped this market for the first time last year.

Mr Powell said he wiped all his holdings with the Fed’s ethics officials.

“Munis has always been viewed as a safe place for a Fed official to invest,” said Powell, noting the idea was that the Fed would never buy munis. He added that the Office of Government Ethics had verified his municipal assets and said there was no conflict.

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All of this poses a conundrum for the Fed, which has to weigh in what its officials can reasonably invest in, given that its stocks influence everything from house prices to the broader stock market.

While there are examples of very high-level government officials who have placed their savings in blind trusts – in which independent fund managers buy and sell securities without communicating transaction details to the beneficiary – those – these are generally discouraged by the Office of Government Ethics, which describes them as “very restrictive and generally cumbersome”. Rather, ethicists tend to recommend divesting individual holdings and investing in mutual funds or other large-scale funds.

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Many Fed officials, but clearly not all, are already doing this.

“The system is stupid in the leeway it gives,” said Mr. Eisen, the former ethics counselor. “The trust system is a recipe for a possible scandal. “


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