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New Limits on Fed Investments 10/22 06:50

   The Federal Reserve is imposing a broad new set of restrictions on the 
investments its officials can own, a response to questionable recent trades 
that forced two top Fed officials to resign.

   WASHINGTON (AP) -- The Federal Reserve is imposing a broad new set of 
restrictions on the investments its officials can own, a response to 
questionable recent trades that forced two top Fed officials to resign.

   The Fed announced Thursday that its policymakers and senior staff would be 
barred from investing in individual stocks and bonds. They would also have to 
provide 45 days' advance notice of any trade and receive prior approval from 
ethics officials. And they would have to hold the investments for at least a 

   The new rules, which have yet to be implemented, would also require Fed 
officials to publicly disclose all financial transactions within 30 days, and 
would bar trading during periods of "heightened financial market stress."

   The central bank said it hasn't yet decided how to define such periods. Nor 
did it say when the new rules would take effect. Fed officials suggested that 
they might have to expand their legal staff to implement them.

   The changes announced Thursday would limit Fed officials to owning 
diversified investments, such as mutual funds, rather than individual 

   "These tough new rules raise the bar high in order to assure the public we 
serve that all of our senior officials maintain a single-minded focus on the 
public mission of the Federal Reserve," Chair Jerome Powell said in a statement.

   Powell, who is under consideration by the Biden administration for a second 
four-year term as Fed chair, came under fire last month after it was revealed 
that two regional Federal Reserve Bank presidents traded stocks and other 
investments last spring. Although the trades complied with Fed financial ethics 
rules, they occurred while the Fed was taking expansive steps to boost the 
economy and calm financial markets. As a result, the trades raised the 
possibility of conflicts of interest, because the two officials could have 
profited from the Fed's actions.

   One of the officials, Robert Kaplan, who was president of the Dallas Fed, 
made trades of $1 million or more in 22 stocks last year, including Apple, 
Facebook and Chevron.

   The other official, Eric Rosengren, who was head of the Federal Reserve Bank 
of Boston, invested in funds that held mortgage-backed securities of the same 
type that the Fed was buying as part of its efforts to hold down longer-term 
interest rates.

   Kaplan and Rosengren announced their resignations soon after the 
questionable trades came to light.

   Ethics experts said the trades underscored how lax the Fed's rules were 
given its outsize influence over financial markets. The regional Fed bank 
presidents take part in private discussions about potential interest rate 
changes that stand to affect the financial markets. They can also move markets 
in their frequent public speeches, which typically reflect their inside 
knowledge of the Fed's policy discussions.

   Powell's term expires in February, but most observers expect the White House 
to announce a decision this fall. Many progressive groups, though, have urged 
the administration to nominate Lael Brainard, a member of the Fed's governing 
board, or some other candidate, rather than Powell. Some have argued that the 
Fed's rules around investing were too lax.

   Not all critics are likely to be satisfied by the stricter rules unveiled 

   "The changes announced today by the Federal Reserve are long overdue and a 
good start but don't go far enough," said Dennis Kelleher, president of Better 
Markets, an advocacy group.

   The Fed should apply them more broadly, Kelleher said, to any Fed employees 
with access to nonpublic information -- not just senior officials. Senior 
leaders, Kelleher said, should have to put their holdings in a blind trust.

   The Fed considered blind trusts, officials said, but did not choose that 
route because officials would be unable to guarantee that they were not 
invested in individual stocks or bonds.

   Powell's own investments have also raised concerns. A former partner at the 
Carlyle Group, an investment firm, Powell owns municipal bonds, a type of 
security that the Fed bought last year for the first time as part of its 
efforts to ensure that financial markets could operate smoothly.

   At a news conference Sept. 22, Powell said he thought that Fed officials 
generally shouldn't own financial assets of the kind that the Fed itself is 
purchasing. He said he had owned muni bonds for years.

   Powell will have to sell the muni bonds under the new rules, Fed officials 
confirmed, and other policymakers will also likely have to sell some 

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