Corruption At The Fed?

Fed Chairman Jerome Powell has decided the Fed ought to “review” its ethics policies after it was revealed that high-ranking personnel at the Fed were actively trading stocks even as the Fed was busy pulling the levers on monetary policy.

fed

CNBC reported today:

Federal Reserve Chairman Jerome Powell directed staff to review the central bank’s ethics rules for appropriate financial activities after disclosures that several senior central bank officials made multiple multimillion-dollar stock trades in 2020, while others held significant investments. …

Last week, financial disclosures filed by the Fed’s 12 regional presidents revealed some had actively traded in 2020, while others held million-dollar financial positions without making changes to their portfolios.

Specifically, Dallas Fed President Robert Kaplan made numerous trades worth $1 million or more last year. Meanwhile, Boston Fed President Eric Rosengren last year was making large trades in real estate investment trusts, possibly in the six-figures range.

The problem here is obvious to any normal person who watches the Fed. 

The Fed is not just an instrument of monetary policy, but a regulator of financial institutions. The Fed regulates bank holding companies, foreign banks working in the US, hundreds of state members banks, and other institutions as well. This gives Fed policymakers an enormous amount of control over the fortunes of many financial institutions.

Moreover, Fed policy can be—and these days, usually is—instrumental in pushing up stock prices and real estate prices through monetary inflation. Since the Great Recession—and arguably since the late 1980s with the “Greenspan put”—the Fed has been instrumental in subsidizing stock prices through an implied promise that the fed will rush to the rescue if financial markets face and real risk of a falling prices. Since the Great Recession especially, the Fed’s unconventional monetary policy has means the Fed has sucked up trillions of dollars in bonds and mortgage debt. This means both a direct subsidy of real estate investments and also—as Fed asset purchases push down interest rates—a flight to yield in the stock market.

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