Speaking at a news conference following a two-day meeting of the central bank’s Federal Open Market, Powell was asked about Robert Kaplan, the president of the Federal Reserve Bank of Dallas, and Federal Reserve Bank of Boston President Eric Rosengren. Filings recently revealed that the two made trades last year of securities that could be influenced by Fed policy.
Powell said he was not aware of the trades made by Kaplan and Rosengren, but he said that “the trust of the American people is essential for us to effectively carry out our mission.” He noted that he directed the central bank to begin a “comprehensive review of the ethics rules around permissible financial holdings and activity by Fed officials.”
He said the current rules “are now clearly seen as not adequate to the task of really sustaining the public’s trust in us. We need to make changes and we’re going to do that as a consequence of this.”
FED HOLDS INTEREST RATES STEADY AS IT EYES FUTURE TAPERING
The investment activity in question occurred during 2020, when the Federal Reserve cut interest rates to near zero and began an asset-buying program in an effort to prop up the U.S. economy during the COVID-19 pandemic.
While Kaplan and Rosengren have said that their transactions are not in violation of ethics rules, both announced earlier this month that they would be selling their individual security holdings by the end of September and would hold those funds in broad indexes and cash instead.
“While my personal saving and investment transactions have complied with the Federal Reserve’s ethics rules, I have decided to address even the appearance of any conflict of interest by taking the following steps,” Rosengren said in a statement.
As a general rule, the chairman said that he thinks central bank officials should not be allowed to own assets that the central bank buys as part of its asset purchases. Powell said on Wednesday that he wants to see the strictures surrounding trading among Fed officials reformed as part of the comprehensive review.
“This is an important moment for the Fed,” he said, “and I am determined that we will rise to the moment. We need to do better, and we will.”
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During this week’s two-day meeting, the Fed decided to stick to its ultra-loose monetary policy and signaled that it will not be slashing interest rates in the coming months, although it did hint that it may begin tapering its monthly purchases of $120 billion in Treasury bonds and mortgage-backed securities.
The central bank also updated its forecasts for gross domestic product, inflation, and unemployment. It upped its prediction for inflation for the rest of the year, but it expects prices to settle back down next year and acknowledged higher unemployment and lower GDP growth than forecast during its June meeting.
Photo Caption:Federal Reserve Board Chair Jerome Powell testifies during a House Committee on Financial Services hearing, Wednesday, July 18, 2018, on Capitol Hill in Washington. (AP Photo/Jacquelyn Martin)