The Federal Reserve has announced that it will be imposing new rules on the investments that its members can carry out. The decision comes after two of the Fed's regional bank presidents were widely criticized for making massive trades during the peak of the Fed's pandemic response.
"Following a comprehensive review, the Federal Reserve Board on Thursday announced a broad set of new rules that will prohibit the purchase of individual securities, restrict active trading, and increase the timeliness of reporting and public disclosure by Federal Reserve policymakers and senior staff," the Fed wrote in a press release.
The new Fed trading rules will bar policymakers and senior staff from buying individual stocks, holding individual bonds, and holding any other market products or investments that involve government-backed securities. Officials will still be allowed to invest in mutual funds, so long as they are held for at least one year.
Any sales made by officials must also be approved in advance and reported publicly within 30 days. Trading during periods when the market is under heightened strain, such as during a pandemic, will also be prohibited. The rules will apply to both central bank and regional Fed bank officials but do not apply to all employees of the Fed.
According to Fed chair Jerome Powell, the new rules are meant to prevent any possible appearances of conflicts of interest.
"These tough new rules raise the bar high in order to assure the public we serve that all of our senior officials maintain a single-minded focus on the public mission of the Federal Reserve," Powell is quoted in the release.
Last year, the president of the Dallas Federal Reserve Bank, Robert Kaplan, traded tens of millions of dollars worth of stock in companies like Amazon (NASDAQ: AMZN), Delta Airlines (NYSE: DAL), and Kraft Heinz (NASDAQ: KHC) during the height of the pandemic.
Another bank president, Eric Rosengren of Boston, reportedly bought and sold real estate securities.
While the consensus is that these investments were legal, both officials received considerable pushback as a result of these trades coming to light, and both have since announced their retirements. The trades were made during a time when the Fed was pumping money into the market, a process of which the officials had first-hand knowledge.
Kaplan and Rosengren are far from the only Fed officials participating in active trading. In fact, Powell himself has received criticism for trades he made during the pandemic. Analysts believe the controversy has likely cost Powell his re-nomination.