The Federal Reserve does not have enough restrictions on how employees trade in the stock market despite the agency having some of the most rigid staff rules, according to a government watchdog.
In February 2022, the Federal Reserve approved a ban on top officials trading stocks and bonds, as well as cryptocurrencies, following scrutiny over whether several people, including Chairman Jerome Powell, could have access to nonpublic financial information. Now, the agency’s inspector general has issued recommendations for changes to the central bank for it to crack down on possible conflicts of interest involving employee trading, according to a 32-page report released on Monday.
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“As the central bank of the United States, the System must maintain impartiality and avoid even the appearance of conflicts of interest to foster public trust in the nation’s financial system,” the government watchdog wrote in the report.
Thousands of federal officials have traded or owned shares in companies that could be heavily influenced by actions taken by agencies, according to a Wall Street Journal report in October 2022. Robert Kaplan and Eric Rosengren, who headed the Federal Reserve banks in Dallas and Boston, respectively, notably resigned in 2021 on the heels of financial disclosures revealing their stock trades in 2020 as the central bank intervened in the market and COVID-19 rippled throughout the U.S.
The incidents drew scrutiny from Congress and placed Powell’s reappointment under the spotlight, leading to the chairman enacting trading restrictions, including a requirement for bank presidents, senior staff, and board governors to receive approval and have to schedule mutual fund buys or sales.
The Monday inspector general report called on the Federal Reserve to require that officials hand over brokerage statements to corroborate their financial disclosures. The watchdog also recommends expanding how many officials are covered by prior rules and creating an enforcement mechanism for officials in violation of restrictions.
Powell responded to the recommendations in an April 19 letter, which was also first released in the Monday inspector general report. He concurred with the various findings, announcing the central bank would craft policies to align with them.
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A spokesperson for the Federal Reserve declined the Washington Examiner’s request for comment.
“We are developing action plans to address the findings and recommendations as described above, and will work diligently to meet the commitments contained within this response,” Powell wrote. “We take seriously the need to ensure the effectiveness of the FOMC’s Investment and Trading Policy, and we look forward to addressing the OIG’s recommendations.”
