In an effort to instill public confidence in the intergrity and impartiality of the U.S. Federal Reserve (the Fed), the institution has announced that it will be restricting its members from trading stocks, bonds – and even cryptocurrencies – as of May 1, 2022. This announcement comes in response to last year’s controversy in which several Fed officials were found to have traded positions prior to key announcements related to the Fed’s response to the financial fallout due to the COVID-19 pandemic.
According to reports, Dallas Fed President Robert Kaplan and Boston Fed President Eric Rosengren were particularly egregious in their trading ahead of key Fed announcements. These two regional presidents have since stepped down from their positions. Also, Fed Vice Chairman Richard Clarida was found to have sold a stock fund before the March 2020 stock market crash, only to then repurchase it before the Fed announced that it would intervene to prop up markets. President Biden has recently nominated a replacement for Clarida.
Fed Chairman Jay Powell has expressed his concern and has stated he has created “tough new rules” to make sure that Fed officials remain focused on their mission and not on enriching themselves. These new rules stipulate that Fed officials will have to provide “45 days’ notice in advance of buying or selling any securities that are still allowed” and will have to hold the securities that they purchase for at least one year.
While the initial announcement for these new rules was centered around a one-year hold period just for securities, the hold period now also applies to cryptocurrencies as well as bonds, commodities, foreign currencies, sector index funds, and derivatives. Also, the new rules apply not only to Fed officials, but also to their spouses and minor children.
The Fed’s actions have also seemingly inspired Congress to crack down on alleged insider trading by some of its members, too. More than 57 current members of Congress have allegedly violated a law designed to stop insider trading. With faith in American institutions at a low, it seems more important than ever that the Fed – and Congress – get their houses in order.
