Trust is the most important thing the Federal Reserve, America’s central bank, has. If the public suspects that the heads of the Fed are trading stocks and in fact are trying to time the markets precisely before the time of making monetary decisions – and this at a time when they are not allowed to and this is a violation of the rules of ethics, since this is trading in stocks using inside information – they will not be able to trust the heads of the central bank that their decisions Clean and free of interests.
A year ago, the affair exploded after Vice Chairman Richard Clarida and two other members were suspected of trading stocks shortly before the Fed made decisions, during the Corona crisis in 2020, at a time when at the same time the Fed injected 4 trillion dollars into the markets to help them not collapse All three are no longer in office. Clarida resigned two weeks before the end of his term, after it was discovered that he had traded much more than was initially revealed – but was later cleared of any blame (much like Powell himself). Two others who resigned are Robert Kaplan, the former chairman of the Dallas Fed, who made large trades in individual stocks, and Eric Rosengren, the former chairman of the Boston Fed, who traded real estate securities – and the investigation into the matter is still ongoing.
The Fed is trying to put the story behind it, but now it turns out that another member of the Fed is suspected of having bought and sold stocks in the period before interest rate decisions were made, the “blackout period”. This is Rafael Bostic, chairman of the Atlanta Fed. He is suspected of violating the Fed’s trading rules and restrictions on its members, according to an official report of the Atlanta Regional Bank Board.
Bostic has been the chairman of the Atlanta Fed since 2017 and is under investigation by the Office of the Inspector General of the Federal Reserve Board (OIG). The investigation revealed that transactions were made in his accounts during the blackout period. According to the report of the Board of Directors of the Atlanta Fed , “inaccuracies” were found in the financial documents submitted by Bostick. Atlanta Fed Ethics Officer Sean Croston wrote in comments to Bostic’s 2021 reports that: “During our review of Rafael Bostic, we discovered that he submitted materially incomplete annual disclosures during all of his previous years on the job. The approval of the report is now based on the understanding that he has now corrected all the previous disclosures and spent his funds.”
In any case, Bostick was forced to correct his documents and published a seven-page document to explain what happened there and according to him the assets were held in “managed accounts. Neither I nor my personal investment advisor had the ability to direct and influence the transactions. You were not aware of specific transactions or their timing.” , including those who violated the eclipse rules and according to him he also did not know that his holdings in the bonds of the US Treasury in 2021 exceeded the limits set by the Fed.
Bostick further claims: “I learned, however, that while I did not have the ability to direct transactions in these accounts, these transactions carried out by third parties – and not just the assets themselves – should also have been recorded on my annual financial disclosure forms. I want to be clear : At no time have I knowingly approved or completed a financial transaction based on non-public information or with any intent to hide or circumvent my obligations to transparent and responsible reporting.”
In response, in an official statement from the Atlanta Fed’s board of directors, Elizabeth Smith, the board’s chairwoman, said that Bostick’s forms have now been “thoroughly corrected. We trust Chairman Bostic’s explanation that he did not seek to profit from any knowledge related to the Federal Open Market Committee, which determines the monetary policy of the United States.”
However, the Fed says that they will “initiate an independent investigation” at the request of Fed Chairman Jerome Powell. “We look forward to the results of their work and will take appropriate actions based on their findings.”
Since the explosion of the affair, the Fed restricts its members even more in making transactions. The rules severely limit the trading of Fed members and prohibit management from buying individual stocks and even limit the transactions to “the purchase of diverse investment vehicles, such as mutual funds.” The members of the Fed have limited windows in which they can approve transactions and since then the limits are more severe. The Fed also changed when and how often transactions must be disclosed.
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