Senator Elizabeth Warren (D-MA) is giving a speech today on the Senate floor at 11AM EST today "on the culture of corruption among high-ranking Fed officials," according to The Hill's Sylvan Lane.
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On Monday, Warren sent a letter to the SEC to investigate whether trades made by Fed officials (including but not limited to) Kaplan, Rosengren and Clarida violated insider trading laws, and to render an opinion over the legality of "ethically questionable transactions" by officials.
As we noted yesterday, on Friday the Fed revealed that centrist Fed vice-chair Clarida had moved millions out of one mutual fund and into two other equity funds the day before Fed Chairman Jerome Powell issued a statement flagging a potential rate cut due to pandemic concerns, and sparking a major market surge.
Warren asked the SEC to look at the extent to which any trades were influenced by nonpublic information available to Fed policy makers and whether they violated provisions that bar such transactions.
The trading activities by all three men "reflect atrocious judgement by these officials," Warren wrote in her letter. Of Clarida, she wrote, "there is no justifiable ethics or financial rationale for him or any other government official to be involved in these questionable market machinations while having access to nonpublic information and authority over decisions that have extraordinary impacts on markets and the economy."
To be sure, Unlike Kaplan and Rosengren, Clarida wasn't actively trading in individual securities but still he bought a basket of equities all of which benefited extensively from the Fed's injection of trillions into the economy, and event which Clarida was certainly aware of. Furthermore, Powell's emergency announcement which took place one day after Clarida's Feb 27 rebalancing, sent stocks sharply higher.
Warren introduced legislation last year that would bar senior government officials from trading individual stocks, and Clarida's activities wouldn't run afoul of those proposed additional restrictions. The activity appears to be "exactly the kind of autopilot trade public officials are supposed to make," said Chris Low, chief economist at FHN Financial in a note to clients Monday. "Unfortunately for Clarida...the timing, coincidence or not, stinks."