Fed Chair Clairda traded on the eve of Powell pandemic statement: BBG

Brian Cheung joins the Yahoo Finance panel to break down the latest Fed scandal as allegations have risen over U.S. Federal Reserve Vice Chair Richard Clarida trading the eve before Powell’s pandemic statement.

Video transcript

- But first, the Black eyes keep coming over at the Federal Reserve. Federal Reserve Vice Chair Richard Clarida traded between $1 million and $5 million out of a bond fund into stock funds, ahead of a key Fed statement. Yahoo Finance Fed correspondent Brian Cheung is here with the details. Brian, what's going on here?

BRIAN CHEUNG: Well, as you mentioned, the punches just keep coming for the Federal Reserve as part of this ethics scandal that it's been dealing with. We already know the departures of two Fed presidents from the Dallas and Boston Feds as a result of their stock trading. In the case of the Boston Fed President, it was real estate investment trusts, in addition to a number of multimillion dollar transactions from the Dallas Fed in a number of stocks.

And now, we're hearing that at the board level, that Reserve vice chairman Richard Clarida as reported by Bloomberg over the weekend, made a number of multimillion dollar transactions right before the Federal Reserve started pulling its emergency actions in response to the financial spin out from the initial months of the COVID crisis in 2020.

The Office of Government Ethics filing shows that on February 28th, the Fed vice chairman rotated a number of millions out of a bond fund into two stock funds. One was the PIMCO stocks Plus Fund. And the other one was in iShares MSCI United States minimum volatility factor exchange traded fund.

Basically, the idea I guess, was to get out of bonds and get back into equities given the sell off that we were seeing in those initial months of the crisis. Now, the transactions themselves again were multi-million dollars. Somewhere between $1 and $5 million as the granularity of the detail we got from the OGE report.

And the Bloomberg report notes that a Fed spokesperson said that those transactions quote "represent a preplanned rebalancing to his accounts." And they also added that these transactions were not done during a blackout period, which is the current status quo for restrictions on the ability of Fed officials to make trades.

And said, quote, "the selected funds were chosen with the prior approval of the board's ethics officials." So the Fed seems to be sticking to its guns on these, these transactions being compliant with the current ethics rules. But of course, the question is whether or not the optics might force the Fed vice chairman to perhaps resign.

Now, of course, his term as Fed vice chairman does expire in January of next year. Anyway, we'll see if the Fed vice chairman maybe faces pressure to bring that forward a little bit earlier, Brian.

- Hey, Brian, I want to follow up on this because with the Kaplan and Rosengren an examples. At first, the Fed also said that they were compliant with the letter of regulations. No? So you know, that didn't end up forestalling them-- them stepping down. So what are you hearing in terms of the potential likelihood that that could happen again?

BRIAN CHEUNG: But for what it's worth, I haven't heard anything like we should expect a resignation or anything that would be pulled forward in terms of retirement for Fed vice chairman Richard Clarida.

But as you point out, it was the same story with the Boston and Dallas Fed presidents, where both the Reserve banks, and even the board itself insisted that the trades that were made were not necessarily out of compliance with the Federal Reserve system's existing code of ethics.

But we did hear from the Fed-- from the Fed chairman Jay Powell in a press conference about two weeks ago, in addition to congressional testimony last week that all of these episodes that we've seen over the past few weeks have shown that the current status quo for the code of ethics clearly is not up to snuff, that it needs to be more stringent.

And indeed-- indeed, it is the case. That when you talk to financial contacts who work in investment banking, or even journalists who cover financial news, they all appear to have in some cases, more stringent rules around the types of trading that they can do than those officials at the Federal Reserve who engineer this type of economic policy.

Which is a big reason why the Fed is now embarking on a review of its government of-- its ethics around government officials making these trades. So we'll see how stringent. They might want to tighten up those rules. But of course, this is everything from the Federal Reserve. Who knows how long that review could take.

- Brian Cheung, thanks so much.