Two former Federal Reserve officials were cleared Monday by the central bank’s internal watchdog of breaking any laws or rules in trading activity during the pandemic in 2020. However, both officials were criticized for creating the appearance of a conflict of interest through their actions.
In March 2020, the Federal Reserve took swift action to support the economy in response to the COVID-19 pandemic. Interest rates were cut to zero, and the Fed began purchasing Treasurys and mortgage-backed securities to stabilize the markets. A year later, it came as a shock to members of Congress and experts alike that Fed officials had been engaged in trading activities during this critical period.
Clearing of Officials
The Federal Reserve’s internal watchdog released a report on Monday clearing two former regional Fed presidents, Robert Kaplan of Dallas and Eric Rosengren of Boston, of breaking any laws or existing rules. However, it highlighted that their actions had created an appearance of conflict that could be questioned in terms of their impartiality.
The inspector general found that Eric Rosengren’s trades in real estate investment trusts (REITs) in 2020 gave the impression of a conflict of interest. Rosengren reportedly referred to trading in REITs as “a blind spot” when discussing it with other Fed officials. Rosengren did not provide a comment in response to the report.
According to the report, Robert Kaplan’s reporting of his trades in 2020 lacked sufficient information, which contributed to the appearance of him acting on confidential FOMC (Federal Open Market Committee) information. This raised concerns about a potential conflict of interest. Kaplan’s spokesperson maintained that he had followed all ethical standards and complied with the rules and regulations set by the Fed. The Dallas Fed’s board of directors also confirmed that his investment activities were consistent with the Fed’s rules.
Commitment to Ethical Principles
A spokesperson for the Federal Reserve reaffirmed their commitment to upholding the highest ethical principles in order to maintain public confidence. It was noted that new rules were adopted in 2022 to prevent any appearance of conflicts of interest from arising in the future.