Powell, Clarida cleared in Fed probe of financial trades

Federal Reserve Chairman Jerome Powell and former Vice Chairman Richard Clarida were cleared in an internal probe of their financial transactions, according to a memo from the Fed’s internal watchdog released Thursday.

The Fed’s inspector general (IG) office, an independent internal watchdog, investigated several financial transactions conducted by the bank’s top two officials in 2019 and 2020, but “did not find evidence” they “violated laws, rules, regulations, or policies related to trading activities as investigated by our office.”

The Fed board of governors asked the IG in October to investigate financial trades conducted by Clarida, former Federal Reserve Bank of Dallas President Robert Kaplan and former Boston Fed President Eric Rosengren. 

Clarida came under fire after disclosing — and then revising — several purchases and sales of investment funds as the Fed was plotting its initial response to the COVID-19 pandemic in February 2020. The trades raised questions of whether Clarida moved his money based on his knowledge of the Fed’s plans.

Both Kaplan and Rosengren invested in and traded millions of dollars in stocks and bonds throughout 2020 while the Fed was actively propping up financial markets with unprecedented support.

All three have since stepped down from their positions, though Clarida’s term at the Fed was to end this year regardless. 

The Fed IG also looked into Powell’s financial trades during December 2019 after some media reports raised questions about his conduct.

In a Wednesday memo to Powell, Fed Inspector General Mark Bialek said the watchdog office had not yet completed its probe of Kaplan and Rosengren. But Bialek said the investigations into Powell and Clarida turned up no evidence of serious misconduct.

Bialek said Clarida’s February 2020 trades did not violate insider trading laws or Fed rules about the usage of classified information by top officials. While Clarida failed to report several financial trades via Office of Government Ethics disclosure forms required for all top government officials in 2019 and 2020, Bialek said he effectively settled the issue by filing updated disclosures with OGE and complying with the Fed IG investigation.

“We determined that these omissions do not require further investigation,” Bialek said.

Bialek said a Powell family trust also made five financial transactions during the “blackout period” — a several-week span during which top Fed officials do not talk to the press, cannot purchase or sell securities, and are discouraged from making financial transactions — around the Fed’s December 2019 monetary policy meeting.

Those five financial transactions were trades meant to free up cash for charitable donations the Powell family typically made each December, Bialek wrote. He said the trades happened after Powell’s wife asked the trust’s financial adviser to make funds available for the donations and the adviser failed to remember the terms of the Fed’s blackout period.

“The trust financial advisor subsequently acknowledged that executing the trades during the blackout period was an ‘oversight’ on the team’s part. We found no evidence that you or your spouse had contemporaneous knowledge that the five transactions were executed during the blackout period. As such, we found that you did not violate the FOMC trading blackout rule,” Bialek wrote.