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Federal Reserve Vice Chair Richard Clarida quietly admitted last month that he had failed to fully disclose financial trades he made at the onset of the pandemic, the latest revelation in a string of ethics problems at the central bank.
Clarida, whose term is set to end Jan. 31, had already come under fire in October because he had moved between $1 million and $5 million out of a bond fund into a stock fund on Feb. 27, 2020. That was just a day before Fed Chair Jerome Powell signaled that the central bank might move to cushion the economy when the pandemic hit the U.S.
But in a correction to his 2020 financial disclosure, Clarida said he had sold between $1 million and $5 million in the same stock fund three days prior to buying it, indicating that he was actively trading. In the Dec. 16 note submitted to the Office of Government Ethics, he referred to the exclusion of this information as an “inadvertent error.”
The new disclosure, reported Thursday by the New York Times, casts doubt on the explanation previously provided by the Fed, that Clarida's sale of the fund represented a pre-planned “rebalancing.” That’s a term investors use to describe portfolio adjustments designed to maintain a certain proportion of stocks and bonds as market conditions change. The Fed did not release a public statement at the time revealing Clarida's latest move.
The news puts fresh scrutiny on Powell, who will face the Senate Banking Committee for his confirmation hearing next week. President Joe Biden announced in November that he would reappoint Powell for a second term and elevate Fed board member Lael Brainard as vice chair, to replace Clarida.
The Fed inspector general is investigating trading activity by top officials, and Sen. Elizabeth Warren (D-Mass.) has called on the Securities and Exchange Commission to look into the matter.
A central bank spokesperson said all of Clarida’s transactions were outside of the “blackout” periods around policy decisions, during which trading is not allowed. “In reviewing his materials, Vice Chair Clarida identified inadvertent errors requiring amendment,” the spokesperson said. “He reviewed those transactions with our ethics office and submitted amendments.”
The Fed’s ethics office included a note in the update saying Clarida was still in compliance with “applicable laws and regulations governing conflicts of interest.”
The saga began in September when the Wall Street Journal reported that then-Dallas Fed President Robert Kaplan had made multiple stock trades worth more than $1 million in 2020 — including in Apple, Amazon, Boeing and Alphabet, Google’s parent company — while the central bank was engaged in an extensive rescue of financial markets.
That was followed by revelations that then-Boston Fed President Eric Rosengren had actively traded in real estate assets. Both Kaplan and Rosengren announced their resignations within a matter of weeks.
That spilled over into a focus on Clarida and Powell himself, who sold between $1 million and $5 million in a broad index fund in October 2020, leading to questions about when it’s appropriate for the Fed chair to engage in any such activity at all.
In late October, Powell announced a major overhaul of conflict of interest rules, saying Fed policymakers and senior staff will be prohibited from active trading and will be able to purchase only diversified investment vehicles like mutual funds.
Under the new policy, central bank policymakers and top staff will have to give 45 days notice and obtain prior approval from internal ethics staff for all purchases and sales. They will also have to hold all investments for at least one year.