Illustration by Jandos Rothstein
Federal Reserve Chairman Jerome Powell sold between $1 million and $5 million worth of stock from his personal account on October 1, 2020, according to disclosure forms reviewed by the Prospect. Powell’s sale of shares from a Vanguard Total Stock Market Index Fund has not been previously reported. This sale occurred right before the Dow Jones Industrial Average suffered a significant drop.
A Fed media relations spokesperson was not available for comment. We will report on any Fed statement on Powell’s trades.
Three other senior Fed officials have faced serious criticism for making stock trades during the pandemic. Dallas Fed President Robert Kaplan and Boston Fed President Eric Rosengren were compelled to take early retirements as a result of the disclosure of their trades. Fed Vice Chair Richard Clarida also came under fire for stock trading. The other trades are now the subject of investigations by the Fed’s own inspector general and the SEC.
There is no American with more insider knowledge about government policy that drives financial market movements than the chair of the Federal Reserve. And as COVID caseloads, hospitalizations, and deaths spiked last fall, the economy was in a precarious condition. October turned out to be the stock market’s worst month since March 2020, when the pandemic began.
The Dow would lose 1,600 points in October, or 6 percent of its value. (It would recoup those losses and then some in subsequent months.)
Powell’s stock sale came against a background of President Trump balking over an urgently needed new economic stimulus package. A day later, Trump announced to the public that he had tested positive for COVID.
Meeting logs show that Powell had been in contact with Treasury Secretary Steven Mnuchin four times on October 1. Powell had been pressing the administration to support more fiscal stimulus, so that the sole responsibility for rescuing the economy would not be on the Fed and monetary policy.
In a speech October 6, after his sale of stock, Powell warned that failure to enact stimulus could have “tragic” economic consequences. He said, “The expansion is still far from complete … Too little support would lead to a weak recovery, creating unnecessary hardship.”
That same day, at 2:48 p.m., after conferring with Mnuchin, Trump tweeted that he had instructed his representatives to halt negotiations with Democrats on a pandemic stimulus package until after the election: “Immediately after I win, we will pass a major stimulus bill.”
Before Trump’s tweet, the Dow was up 200 points. Then the market immediately tanked, and was down 376 points for the day.
A day later, on October 7, the minutes of the Fed’s policy-setting Federal Open Market Committee were released, confirming the Fed’s concerns combined with its continuing policy of very low interest rates and massive bond purchases.
The stock sale came after the September 15–16 meeting of the Open Market Committee, but before the minutes of that meeting were released to the public on October 7. Among other warnings, the minutes reported:
“Participants continued to see the uncertainty surrounding the economic outlook as very elevated, with the path of the economy highly dependent on the course of the virus; on how individuals, businesses, and public officials responded to it; and on the effectiveness of public health measures to address it. Participants cited several downside risks that could threaten the recovery.” These included insufficient fiscal stimulus and excessive risk-taking in a very-low-interest-rate environment created by the Fed itself.
Ultimately, it would take until December 27 to pass into law another COVID relief bill, leaving millions without assistance like expanded unemployment benefits for months.
According to his 2020 financial disclosure statement, which gives ranges of personal wealth, Powell’s net worth is between $20 million and $55 million. (It is probably worth more now since the broad market is up nearly 20 percent this year.)
If Powell needed cash, besides his stock index fund, Powell had several other investments, including bond funds that track municipal debt, real estate, and infrastructure. (Powell has no holdings in individual equities.) It’s also the case that a person of Powell’s means has no difficulty in pledging assets to raise cash on short notice, without having to sell them.
Powell also made several other smaller stock and bond trades during 2020, as he has done in previous years. For example, he sold a more nominal amount of the Vanguard equity fund, between $50,000 and $100,000, on September 21, 2020.
The smaller trades included mostly bonds and bond funds, all below $250,000 and most in the $1,000–$50,000 range. Some of them may have to do with automatic portfolio rebalancing. Powell made 26 trades in all in 2020, seven sales and 19 purchases. But the October 1 trade stands out because of its size and timing.
Under current laws, top Fed officials do not have to put their assets into a blind trust over which they have no control, despite their knowledge of the inner workings of the economy. The Fed’s code of conduct for senior officials holds that “personal financial dealings should be above reproach, and information obtained by them as officials of the System should never be used for personal gain.” The code says that no purchases or sales of securities should be made during the Federal Open Market Committee “blackout period,” which begins the second Saturday before an FOMC meeting and ends the Thursday after. None of Powell’s sales happened during the blackout periods for 2020, though the large October 1 stock sale was made during a period when the public was not privy to the minutes of the Fed’s most recent meeting.
Regardless of the blackout periods, the code of conduct continues, Fed officials “should carefully avoid engaging in any financial transaction the timing of which could create the appearance of acting on inside information concerning Federal Reserve deliberations and actions … They should be careful to avoid any dealings or other conduct that might convey even an appearance of conflict between their personal interests, the interests of the System, and the public interest.”
When the trades of Kaplan, Rosengren, and Clarida were disclosed in the press, Powell stated that the Fed’s rules are “clearly seen as not adequate to the task of really sustaining the public’s trust in us,” and he promised to make changes. Only belatedly did he call for an inspector general’s report; he has not promised to make that public.
Sen. Elizabeth Warren (D-MA), in a speech on October 5, faulted Powell for tolerating a “culture of corruption” at the central bank, calling him “a go-along-to-get-along leader who doesn’t know or doesn’t care when, on his watch, people with great responsibility advance their own interests over those of our nation, or someone who drags his feet in dealing with problems that shake the public’s confidence in the institution he leads.”
Warren has come out against Powell’s reappointment as Fed chair when his term expires in January. The Wall Street Journal reported last Friday that the trading scandal had “dented but not derailed” Powell’s path for a second term. This was before Powell’s own trades were part of the story.
