Two Federal Reserve officials involved in a controversy over trading in securities that could have benefited from the central bank’s intervention in 2020 in financial markets announced on Monday that they would be leaving their positions.
Robert S. Kaplan, who heads the Dallas Federal Reserve, will retire on Oct. 8, according to a statement released Monday afternoon. Mr. Kaplan’s statement acknowledged the controversy as the reason for his departure. Eric S. Rosengren, the chairman of the Boston Fed, will retire on Thursday, accelerating his planned retirement by nine months. Mr Rosengren cited health reasons for his early departure.
The resignations followed the Fed’s announcement this month that President Jerome H. Powell had ordered a review of the central bank’s ethics rules in light of concerns surrounding transactions. Asked about his confidence in Mr Kaplan and Mr Rosengren at a press conference last week, Mr Powell expressed his displeasure with what had happened.
“No one in the FOMC is happy to be in this situation, to have these issues raised,” said Powell, referring to the Federal Open Market Committee responsible for policy development. He added: “This is an important time for the Fed and I am determined that we are up to the task.”
Kaplan noted in his statement that it was his decision to leave the Fed, and that “the recent emphasis on my financial disclosure may become a distraction” to the central bank’s economic work.
Mr Kaplan has come under scrutiny for buying and selling millions of dollars in individual stocks, among other investments, last year – transactions first reported by The Wall Street Journal on the 7th September.
Mr Rosengren announced Monday morning that he was retiring earlier than planned in an attempt to prevent worsening kidney disease, in the hope of avoiding dialysis. The Boston Fed chairman has been criticized for owning stakes in real estate investment trusts, which sometimes invest and manage properties, and has listed purchases and sales in those of 2020. He has passed the last year to publicly warn of risks in the commercial real estate market, and helped set Fed policy on purchases of mortgage-backed securities, which may help the housing market by improving financing conditions.
The two presidents had previously announced that they would convert their financial assets into general indices and cash by September 30.
Mr Powell made statements of support for the two retired officials in press releases announcing their departure.
But the controversy pushed him into a delicate position. His own term as Fed chairman expires early next year and the White House is actively considering renewing him. A scandal within his central bank is sure to attract questions from senators during his testimony this week, and could even harm his chances of renewal.
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As chairman, Powell also focused on building public support for the central bank and explaining its role. He holds frequent press conferences, aims to speak in simpler language, and has championed a series of ‘Fed Listens’ events where senior central bank officials meet and hear from members of the community with whom they otherwise could not. not interact – from community college students to the local pantry. Staff.
The 2020 trade disclosures, which are shaping up to be the biggest scandal the central bank has faced in years, risk undermining the widespread confidence it is striving to build.
Responses to the business disclosures from Mr. Kaplan and Mr. Rosengren have been swift and scathing. The Better Markets group had asked the Fed to fire the two presidents if they did not resign. Other progressive groups had called for the ouster of at least one of them, and ethics watchers said the rules that had allowed their trades needed to be reviewed.
After the resignation announcements on Monday, Wall Street quickly began to assess what the departures would mean for monetary policy. Both officials tended to worry about financial stability and, for that reason, were likely in favor of removing monetary policy support earlier than some of their colleagues – a position often described as hawkish.
“Their exit will eliminate two of the nine other hawkish Fed officials who saw a rate hike in 2022 at the September FOMC meeting last week and suppress important voices on financial stability issues in particular,” wrote Krishna Guha of Evercore ISI in a note to clients shortly after the announcement.
Mr. Rosengren has served as Chairman of the Boston Fed since 2007, and his retirement was previously scheduled for June. The 12 regional members of the Fed alternate between voting seats and Mr Rosengren is said to have had a vote on monetary policy next year. Mr Kaplan would have voted in 2023.
Kenneth C. Montgomery, the first vice-president of the Boston Fed, will be the interim president of this bank. Boston Fed board members, with the exception of bank representatives, will need to select a permanent chairman, subject to the approval of the Fed’s board of governors in Washington.
A longtime Fed employee who worked in research and banking supervision before becoming president, Rosengren was instrumental in responding to the 2020 crisis. His regional Fed managed both the common fund money market investment and the Main Street loan support programs the Fed rolled out last year.
The Boston Fed noted in the statement that Rosengren hoped his health improved and that he would be able to “explore areas of professional interest” in the future.
Mr. Kaplan has been the head of the Dallas Fed since late 2015, before which he taught at Harvard University and had a long career with Goldman Sachs. Meredith Black, the bank’s first vice president who had planned to retire, will serve as interim president until a successor is named, the Dallas Fed said.