Controversy Over 'Inappropriate Investments'... Fed Imposes Strict Investment Restrictions on Senior Officials

Jerome Powell, Chair of the U.S. Federal Reserve System
[Photo by Reuters Yonhap News]

[Asia Economy Reporter Cho Hyun-ui] Controversy has arisen after it was revealed that Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), sold up to $5 million (about 5.9 billion KRW) worth of stocks from his personal account just before the U.S. Dow Jones Industrial Average plunged sharply in October last year. In response, the Fed has established stringent investment restriction regulations, including banning senior officials from holding individual stocks.

According to the Wall Street Journal (WSJ) and others on the 21st (local time), 12 Federal Reserve Bank presidents and 7 Fed board members, among other senior officials, will no longer be allowed to invest directly in individual stocks. Until now, the Fed has only prohibited stock trading by banks and financial institutions under its regulatory authority. They can still invest in financial products such as mutual funds, but with various restrictions.

Under the new regulations, Fed senior officials must notify and obtain approval at least 45 days before buying or selling permitted financial products like funds, and must hold them for at least one year. The Fed stated, "During periods of heightened financial market stress, even funds cannot be bought or sold."

The new ethics rules were established shortly after Boston Fed President Eric Rosengren and Dallas Fed President Robert Kaplan resigned early amid criticism over inappropriate investments. It was revealed that Kaplan had invested over $1 million in stocks such as Apple, Amazon, and Delta Air Lines and made multiple trades, while Rosengren had purchased individual stocks including real estate investment trusts and Pfizer.

Chairman Powell also faced criticism for investing large sums in index funds and municipal bonds. The controversy was particularly intense last year, as the Fed lowered the benchmark interest rate to near zero and engaged in quantitative easing by purchasing large amounts of bonds to mitigate the economic impact of the COVID-19 pandemic.

Chairman Powell explained in a statement, "The new regulations raise ethical standards to assure the public that all senior officials are solely dedicated to serving the Fed’s public mission."

This regulatory tightening comes amid some uncertainty over Powell’s renomination, as his term ends in February next year. Progressive Democratic politicians, including Senator Elizabeth Warren (Massachusetts), who initially appeared to support Powell’s renomination, have voiced opposition citing loose Wall Street regulations and recent controversies involving senior officials’ investments.

The WSJ reported, "Senator Warren called the controversy evidence of a culture of corruption within the Fed and said Powell has 'failed as a leader.'"

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