Fed officials called for a months-long ‘trade blackout’ last year

October 21 (Reuters) – U.S. Federal Reserve officials have been strongly urged to observe a trade blackout for “several months” in spring 2020 as the central bank embarks on a series of extraordinary actions to mitigate the threat presented by the coronavirus pandemic, according to a note sent to all senior officials by the Fed’s ethics office.

“In light of the rapidly changing nature of recent and likely future actions in the system (Federal Reserve), please consider observing a trading hiatus and avoiding unnecessary securities transactions for at least the next few months.” , or until the Federal Open Market Committee (FOMC) and the council’s political actions are returning to their usual schedule, “the note dated March 23, 2020 said.

On the same day, the Fed, in an unanticipated action, pledged purchases of indefinite bonds “in the amounts necessary to support the proper functioning of the market”, a move which ultimately helped stem the frantic sell-off of the market. which had wiped out a third of the American stock market. value in a month. Since that date, the S&P 500 Index has doubled in value.

Concerned even with “the appearance of acting on inside information regarding the actions and deliberations of the Federal Reserve,” the ethics office went so far as to urge officials to seek advice before taking any investment action. as generally harmless as redeeming funds from a government tuition savings account. ‘children.

“If you need, for example, to redeem a 529 account to pay for tuition or make other necessary transactions, please let me know in advance,” the memo reads.

The advice was sent to all members of the Fed’s Board of Governors, senior executives and the 12 regional bank presidents.

But within weeks, some of them had started to resume trading, a window that, at a glance, would not appear in line with the sought-after “several months” of forbearance.

Eric Rosengren, then chairman of the Boston Fed, resumed trading in early May, according to his revelations. Robert Kaplan, then chairman of the Dallas Fed, resumed active trading – including in individual stocks and derivatives – sometime after the end of April, a Federal Reserve spokesperson told The New York Times, although the exact date is unclear.

The Times was the first to report on the note earlier on Thursday.

The two resigned their posts in September after reports of their investing activities last year quickly turned into an ethical controversy for the Fed. On Thursday, the Fed, under President Jerome Powell, banned individual stock purchases by its senior officials and unveiled a wide range of other restrictions on their investing activities. Read more

An investigation by the Office of the Inspector General of the Fed into the business activities of senior Fed officials, sought by Powell last month, is still ongoing.

A Dallas Fed spokesperson, when asked about Kaplan’s stock trading schedule, said “in view of the Inspector General’s review, with whom we are fully cooperating, we will refrain from providing any further information in order to not to anticipate this process “.

Reporting by Dan Burns; Editing by Diane Craft and Daniel Wallis

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