On Friday, Bloomberg News reported that Fed Vice Chair Richard Clarida sold between $1 million and $5 million of shares in a bond fund and purchased shares in two stock funds on Feb. 27, 2020, according to financial disclosure forms that only give dollar amounts in ranges. The trades occurred a day before the Fed issued a statement saying it was “closely monitoring” the emerging pandemic and its economic impact. The Fed cut its benchmark interest rate just a few days later.
Earlier Monday, Democratic Sen. Elizabeth Warren urged the Securities and Exchange Commission to investigate the investments by all three officials and whether they violated insider trading rules.
“The reports of this financial activity by Fed officials raise serious questions about possible conflicts of interest and reveal a disregard for the public trust,” the Massachusetts senator wrote. “They also reflect atrocious judgement by these officials.”
Both Rosengren and Kaplan said their trades did not violate the Fed's rules. Yet the Fed's ethics guidelines, which are similar to those for other government officials, restrict trading that raises the appearance of a conflict of interest. Clarida has not commented on his trades.
All three officials have been participants in the Fed's debates about whether to raise or lower interest rates or take other steps to influence the economy. They have also been privy to a tremendous amount of data tracked and analyzed by Fed economists, and their public comments can move markets.
Clarida was appointed to the Fed by President Donald Trump in 2018. Before that he worked for 12 years at PIMCO, an investment management firm that specializes in fixed income. He was promoted to managing director at PIMCO in 2015. Rosengren spent most of his career at the Boston Fed.
Fed Chair Jerome Powell said during a congressional hearing last week that the trades by Rosengren and Kaplan seemed to be "in compliance with the existing rules," which "just tells you that the problem is that the rules and the practices and the disclosure needs to be improved and that's what we're working on."