Fed Faces Controversy Over Insider Stock Trading... Ethics Rules to Be Revised

Chairman Powell Orders Direct Inspection

Jerome Powell, Chair of the U.S. Federal Reserve (Fed)
[Photo by AFP Yonhap News]

[Asia Economy Reporter Park Byung-hee] The U.S. central bank, the Federal Reserve (Fed), has begun reviewing ethical regulations related to stock trading by its internal personnel, the Wall Street Journal (WSJ) reported on the 16th (local time). This follows controversy after it was confirmed last week that Robert Kaplan, President of the Dallas Fed, and Eric Rosengren, President of the Boston Fed, engaged in stock trading.

A Fed spokesperson issued a statement saying, "The trust of the American people is crucial for the Fed to effectively fulfill its mission of maximum employment and price stability," adding, "Fed Chair Jerome Powell personally ordered a review of the ethics code last week." The spokesperson further stated, "We will broadly examine the regulations concerning stock holdings and trading by senior Fed officials and appropriately revise the rules."

President Kaplan was found to have traded stocks worth over $1 million in companies such as Alphabet, Apple, Amazon, Boeing, and Facebook, and also invested in funds, sparking controversy. President Rosengren was also confirmed to have traded stocks, though less than Kaplan. Subsequently, concerns were raised that those who influence the U.S. benchmark interest rate decisions and have significant impact on the overall financial markets, including stocks, are engaging in direct stock trading for personal gain, which is deemed inappropriate.

Both Presidents Kaplan and Rosengren stated that their stock trading complied with internal regulations but, given the controversy, they will sell their holdings. They pledged that all proceeds from the sales will be invested in passive funds such as exchange-traded funds (ETFs) and promised not to engage in stock trading going forward.

The 12 regional Feds are subject to oversight by the government agency Fed but are also quasi-private institutions owned by regional banks.

Senator Elizabeth Warren (Democrat, Massachusetts), who has long advocated for strong banking regulations, argued on the same day that the regional Feds should change internal rules to prohibit stock trading by senior Fed officials. She emphasized that banning stock trading would clearly convey the Fed officials’ ethics and integrity to the American people.

This content was produced with the assistance of AI translation services.