The Federal Reserve has ordered a broad review of the ethics rules that govern the financial dealings of top officials at the central bank of the U.S. The review was called for by Fed Chair Jerome Powell after news came out that two senior Fed officials were actively trading during 2020, during the peak of the pandemic.
"Because the trust of the American people is essential for the Federal Reserve to effectively carry out our important mission," a Fed spokesperson wrote in a statement, "Chair Powell late last week directed Board staff to take a fresh and comprehensive look at the ethics rules around permissible financial holdings and activities by senior Fed officials."
According to The Wall Street Journal which first reported on the officials' actions, Dallas Fed President Robert Kaplan and Boston Fed President Eric Rosengren both took part in frequent or significant trades throughout 2020. An in-house ethics officer found the officials' actions in compliance with the Fed's rules.
Lawmakers like Elizabeth Warren soon came out to speak against the actions described in the Journal's report. Warren has encouraged the Fed to impose new and stricter rules on officials' trading.
"I've said it before and will say it again: Members of Congress and senior government officials should not be allowed to trade or own stocks. Period." Warren tweeted.
Some of the same rules that govern the Fed also govern members of Congress, though the Fed has additional codes of conduct. Those codes of conduct are what Powell has ordered reviewed.
The rules bar officials from participating in trades when a Fed policy meeting is approaching, but they don't explicitly bar officials from trading at other times. However, the rules do include language which could potentially restrict such activity.
"An employee should avoid any situation that might give rise to an actual conflict of interest or even the appearance of a conflict of interest," reads the Fed's code of conduct. "Avoid engaging in any financial transaction the timing of which could create the appearance of acting on inside information concerning Federal Reserve deliberations and actions."
According to the Associated Press, it's relatively common for Fed officials to hold extensive investment portfolios, but it's not accepted practice for them to actively trade stock while serving.
"Forget about the individual trades," Benjamin Dulchin, director of an advocacy group working to bring the Fed's actions in line with the needs of American workers, told reporters. "The issue is that a president of a Fed bank - one of the handful of people who ... set our country's monetary policy - so clearly has his personal interests aligned with the success of our biggest corporations."
One of the key factors in the current push back against officials' trading and any alleged "appearance of a conflict" is the proximity to the pandemic. In 2020, the Fed rolled out a sweeping pandemic response, a response that just so happened to double to the S&P 500 Index
Powell was promoted to Fed Chair by former President Donald Trump in 2018. His term ends in February, at which point President Joe Biden will either replace him or appoint him for another four years. Some of the criticism against Powell has regarded his approach to Wall Street which critics have seen as too lenient.