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Photo: Al Drago/Bloomberg via Getty Images

New disclosures that showed Fed officials were active in financial markets set off a firestorm of criticism. Now the Fed may overhaul the long-standing rules that allow those transactions.

Why it matters: What officials actively traded was sensitive to the Fed decisions they helped shape, including the unprecedented support that underpinned a massive financial market boom.

  • "Chair Powell late last week directed Board staff to take a fresh and comprehensive look at the ethics rules around permissible financial holdings and activities by senior Fed officials," a Fed spokesperson said in a statement Thursday.

Catch up quick: All of the regional Fed bank heads released financial disclosures for 2020 — but two raised eyebrows: Robert Kaplan (Dallas) and Eric Rosengren (Boston).

  • Kaplan made multiple million-dollar stock trades (including in names like Tesla) plus other investments, while Rosengren invested in real-estate tied assets.

The intrigue: Their activity didn't violate Fed rules. Ethics officials at the respective regional banks review disclosures.

How it works: A spokesperson said additional rules specific to Fed officials are “stricter than those that apply to Congress and other agencies.”

  • Fed officials (and some staff) are subject to a “blackout period”: no trading 10 days ahead of policy meetings through midnight of the final meeting day.
  • They also can't own bank stocks and are restricted in ownership of government securities: for instance, they can own Treasury bonds as long as holdings aren’t valued above $50,000, per a conduct guide, last updated in 2017.

But while Fed chair Jerome Powell is required to report transactions above a certain threshold within 30 days (like other top government officials), Fed bank presidents don’t have to do that.

The bottom line: In statements that came minutes apart last week, Kaplan and Rosengren said they would dump their individual stock holdings by Sept. 30 — and won’t trade stocks while in their posts to avoid “even the appearance of any conflict of interest.”

  • Of note: The conduct guide already cautions officials to “avoid any dealings … that might convey even an appearance of conflict between their personal interests, the interests of the [Fed], and the public interest.”

Go deeper

Kate Marino, author of Markets
Dec 16, 2021 - Economy & Business

Stocks rally after the Fed's hawkish pivot

Federal Reserve chair Jerome Powell. Photo: Kevin Dietsch/Getty Images

The Federal Reserve is set to remove the punch bowl. And the market is totally fine with that.

Driving the news: The Fed said Wednesday that it'll hasten its pullback of emergency market support, opening the possibility of interest rate hikes as soon as March.

U.S. on the cusp of full employment

Fed chair Jerome Powell during a livestreamed news conference. Photo: Michael Nagle/Bloomberg via Getty Images

The nation's top economic policymaker all but said it Wednesday: America is on the cusp of full employment.

The big picture: "The labor market by many measures is hotter than it ever was" before the pandemic, Federal Reserve chair Jerome Powell told reporters.

Updated 2 hours ago - World

UK government: Kremlin has plan "to install pro-Russian leadership" in Ukraine

British Foreign Secretary Elizabeth Truss. Photo: Gints Ivuskans / AFP via Getty Images

The United Kingdom's Foreign Secretary on Saturday night said the government has "information that indicates the Russian Government is looking to install a pro-Russian leader in Kyiv as it considers whether to invade and occupy Ukraine."

Driving the news: U.S. National Security Council spokeswoman Emily Horne called the intelligence "deeply concerning" in a statement to Axios. The Biden administration has said Russia is actively manufacturing a pretext for invasion and warned that Putin could use joint military exercises in Belarus as cover to invade from the north.