The Federal Reserve has banned its top officials from a number of investing activities, particularly those involving individual stocks, bonds, cryptocurrencies, and commodities.
The FOMC announced the new rules yesterday, February 18th.
It specifically bans officials, as the council’s statement read:
The purchase of individual stocks or sector funds, investments in individual bonds, agency securities, cryptocurrencies, commodities or foreign currencies, entering into derivative contracts and engaging in short selling or buying securities on margin is prohibited.
Notably, officials are still able to keep their existing shares, while cryptocurrencies appear to be banned altogether.
There are exceptions for goods and foreign currency owned for non-investment purposes, ie perhaps because officials may want to travel or put gas in their cars but there is no such exception for cryptocurrencies.
Why does the Federal Reserve ban its responsibility for trading and investing?
The new rules come on the heels of the controversial tenure of Richard Clarida, the Federal Reserve Governor who announced his resignation in January after revealing a number of stock deals he made in February 2020.
The Federal Reserve, as the central bank of the United States, has tremendous economic power.
For example, the stock market has faced turmoil in recent weeks after Federal Reserve Chairman Jerome Powell indicated that he plans to raise benchmark interest rates.
Critics suspected Clarida was trading with insider knowledge of the impending stock market crisis as the first wave of coronavirus and shutdowns hit the United States.
Currently, several members of Congress are discussing new legislation in the same vein.
Federal Reserve officials covered by the new rules who are prohibited from trading and investing:
Board members, presidents, vice presidents, directors of research at the Federal Reserve, directors of board divisions, and directors or deputy directors.
The Federal Reserve currently has a number of vacancies, following investigations and removals.
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