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Fed rules should be tightened

U.S. Federal Reserve officials wield an immense amount of influence on our economy. Last year, the Fed took unusual steps to shore up the economy and stabilize financial markets during the pandemic by cutting its short-term benchmark interest rate to zero in March 2020. Since then, it purchased trillions of dollars in Treasury securities and mortgage-backed bonds to hold down longer-term interest rates.

One result of that action was to make stocks more attractive than bonds to investors.

Now we know that in 2020 Robert Kaplan, president of the Dallas Federal Reserve Bank, traded millions of dollars of stock in companies such as Apple, Amazon, and Google, while Eric Rosengren, president of the Boston Fed, traded in stocks and real estate investment trusts, according to financial disclosure forms.

While such maneuvers certainly don’t pass the smell test, it appears as if — in what can most kindly be described as an astounding oversight — they were perfectly legal.

Forget about the power of their own words to move markets, Fed officials are privy to economic information earlier than most ordinary investors would have a chance of learning it.

So while at the same time proclaiming they’ve done nothing that violated Fed rules, Kaplan and Rosengren have pledged to divest their holdings. This came after calls for the Fed to ban ownership of individual stocks by senior Fed officials.

Last week, Fed Chair Jerome Powell asked for a “fresh and comprehensive look at the ethics rules around permissible financial holdings and activities by senior Fed officials.”

We’ve already taken a look. What must come next is a serious tightening of the rules to prevent Fed officials from being able to profit from their influence and the information they receive. Powell and his staff should have no doubt what is required of them in making that clear.

editorial@vindy.com

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