From Time Magazine:

The Federal Reserve’s internal watchdog cleared two former policymakers of legal wrongdoing in a probe into personal trading activity in 2020, citing a lack of violation of federal laws or rules. However, their trading created an “appearance of a conflict of interest.” The probe has led to an increase in scrutiny of the Fed. The trading occurred during the pandemic, when the Fed was intervening in financial markets to support the economy.

The watchdog report prompted bipartisan legislation to bolster congressional oversight of the central bank. It stated that the disparity of public response and the conclusion that the trades complied with existing rules is evidence of the inadequacy of the rules in place. The scandals have increased attention on Fed governance, with Senators Elizabeth Warren and Rick Scott introducing legislation to reform the inspector general position to be a presidential appointee, confirmed by the Senate.

Kaplan and Rosengren retired in 2021 soon after the release of their 2020 financial disclosures. The trades and resulting probes have increased scrutiny and criticism of the Fed, and prompted bipartisan legislation that would bolster congressional oversight of the central bank. The Fed has since revamped its trading rules, imposing restrictions on officials’ investing and trading activity to support public confidence.

The Fed’s internal watchdog issued details of an earlier investigation clearing Chairman Jerome Powell and Vice Chair Richard Clarida of wrongdoing in 2022. Some lawmakers have questioned the independence of the watchdog, as the position is filled by the Fed chairman and compensation is dependent on officials who may be subject to investigation. Warren and Scott have introduced legislation to reform the inspector general position to be a presidential appointee.

Atlanta Fed President Raphael Bostic also under investigation by the Fed’s internal watchdog for inadvertent omissions from his financial disclosures. The report didn’t address these transactions. The scandals and investigations continue to cast doubt on the Fed’s credibility and transparency. The situation has prompted increased pressure from lawmakers to reform governance and strengthen regulatory oversight.



Read more: Federal Reserve’s Kaplan, Rosengren’s trading actvity was legal, but ill-advised: watchdog