Deeper look at Fed holdings reveals more conflicts in bond trades

Author: Adam Button | Category: Central Banks

Fed officials owned bonds that the central bank was buying

Fed officials owned bonds that the central bank was buying
The Fed was actively driving up the prices of bonds that officials at the FOMC owned, according to a new report.

CNBC looked at previous disclosures from Fed members and found that programs launched in 2020 were used to buy bonds they owned. Powell emphasized that his holdings were in a family trust that he has no say over.

For the Fed's Rosengren and Barkin, the picture was more murky, as CNBC reports:

  • Boston Fed President Eric Rosengren held between $151,000 and $800,000 worth of real estate investment trusts that owned mortgage-backed securities. He made as many as 37 separate trades in the four REITs while the Fed purchased almost $700 billion in MBS.
  • Richmond Fed President Thomas Barkin held $1.35 million to $3 million in individual corporate bonds purchased before 2020. They include bonds of Pepsi, Home Depot and Eli Lilly. The Fed last year opened a corporate bond-buying facility and purchased $46.5 billion of corporate bonds.
For me, this is much less egregious than the active equity buying and selling. The Fed has been buying bonds for a long time and managing interest rates is its job. That said, the new report shows that problems aren't going away.

Moreover, the connection to the Fed chair and his inability to foresee and prohibit this might damn his chances and reappointment.

The Fed's code of conduct says officials "should be careful to avoid any dealings or other conduct that might convey even an appearance of conflict between their personal interests, the interests of the system, and the public interest."

Kaplan claimed that none of his trades were done in formal blackout periods last year but as Dennis Kelleher, CEO of the nonprofit Better Markets said in the report: during a crisis like last year, "the whole year should be considered a blackout period."

Oh well, at least they didn't leak private economic forecasts to German banks like the ECB. Oh wait, if you do that at the Fed you get promoted to Fed Chair and Treasury Secretary.


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