The Fed

Inspector general clears two former regional Fed presidents in probe of pandemic trades

Officials criticized for creating appearance of conflict

The Federal Reserve building in Washington.

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Two former Federal Reserve officials were cleared Monday by the central bank’s internal watchdog of breaking any laws or rules in trading activity during the pandemic in 2020, but both were criticized for creating the appearance of conflict by their actions.

In March 2020, the Fed rushed to support the economy when it became clear that the pandemic would cause a massive disruption, cutting interest rates to zero and purchasing Treasurys and mortgage-backed securities to support the markets. A year later, members of Congress and outside experts were shocked that Fed officials had been trading during this period.

The report by the Federal Reserve’s internal watchdog on Monday cleared two former regional Fed presidents, Robert Kaplan of Dallas and Eric Rosengren of Boston, of breaking any laws or existing rules. But the Fed’s inspector general said that the actions of both officials created “an appearance of a conflict of interest” that could cause a reasonable person to question their impartiality.

The inspector general found that Rosengren’s trades in real-estate investment trusts (REITs) in 2020 created the appearance of conflict. According to the report, Rosengren told Fed officials that trading in REITs was “a blind spot.”

Rosengren did not reply to an email seeking comment on the report.

The inspector general said Kaplan’s required reporting of his trades in 2020 had a lack of information that helped create an “appearance of acting on confidential FOMC information” under the Fed’s rules and an appearance of conflict.

A spokesperson for Kaplan reiterated previous statements that he had adhered to all Fed ethical standards and his investment activities and disclosures met Fed compliance rules and standards. He said the Dallas Fed’s board of directors had stated that his investment activities were in accordance with the Fed’s rules.

A spokesman for the Fed said that the central bank is committed to upholding the highest ethical principles to maintain public confidence. The spokesman noted that the board adopted new rules in 2022 that guard against “even the appearance of conflicts of interest.”