Powell, Clarida authorized Fed investigation of financial transactions

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

The Fed’s Office of the Inspector General (IG), an independent internal watchdog, investigated several financial transactions conducted by two of the bank’s top officials in 2019 and 2020, but “found no evidence” that they “violated laws, rules, regulations or policies in connection with the trading activity investigated by our office.”

The Fed’s Board of Governors asked the IG in October to investigate financial transactions conducted by Clarida, former Dallas Federal Reserve Bank President Robert Kaplan and former Boston Fed President Eric Rosengren.

Clarida came under fire after it disclosed — and then audited — several purchases and sales of mutual funds as the Fed planned its initial response to the COVID-19 pandemic in February 2020. Trades raised questions about whether Clarida moved its money based on of his knowledge of the Fed’s plans.

Both Kaplan and Rosengren invested and traded millions of dollars in stocks and bonds during 2020 as the Fed actively supported financial markets with unprecedented support.

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

The Fed IG also investigated Powell’s financial transactions during December 2019 after some media reports raised questions about his behavior.

In a Wednesday memo to Powell, Fed IG Mark Bialek said the watchdog’s office had not yet completed its investigation of Kaplan and Rosengren. But Bialek said the investigations into Powell and Clarida showed no evidence of serious misconduct.

Bialek said Clarida’s trades in February 2020 did not violate insider trading laws or the Fed’s rules on the use of confidential information by top officials. Although Clarida failed to report several financial transactions on the Office of Government Ethics disclosure forms required of all top government officials in 2019 and 2020, Bialek said he effectively resolved the issue by submitting updated information to OGE and complied with the Fed IG’s investigation -a.

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

Bialek said the Powell family trust also made five financial transactions during a “blackout period” — a period of several weeks during which top Fed officials do not speak to reporters, cannot buy or sell securities and are discouraged from financial transactions — around the Fed’s December 2019 monetary policy meeting.

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

“The trust’s financial adviser subsequently admitted that executing transactions during the blackout period was an ‘oversight’ on the part of the team. We found no evidence that you or your spouse knew at the same time that the five transactions were made during the blackout period. As such, we have found that you did not violate the FOMC’s closing trading rule,” Bialek wrote.

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