October 7, 2022


Skillful Business Crafters

Fed Vice Chairman to leave two weeks early in wake of ethics debacle

Federal Reserve Vice Chairman Richard Clarida will leave the central bank two weeks earlier than planned, following increased scrutiny into financial transactions he made in 2020 — while the Fed was taking action to save the U.S. economy.

Clarida, who served as the central bank’s No. 2 official on monetary policy efforts through the pandemic, said he will step down from the Fed effective Jan. 14. He was appointed by the Trump administration in September to serve for a term that expired Jan. 31, 2022.

The New York Times reported last week that Clarida failed to properly disclose his 2020 trading activities in his original filings last year. The former PIMCO executive had first reported that he put a few million into a stock fund in late February, shortly before the central bank began teasing the possibility of Fed intervention in the markets.

At the time, the Fed insisted the move was part of a preplanned rebalancing.

But then Clarida amended the filings to show he had actually moved out of the stock fund while markets were sinking, only to buy back into the fund three days later.

Federal Reserve Vice Chair Richard Clarida reacts as he holds his phone during the three-day “Challenges for Monetary Policy” conference in Jackson Hole, Wyoming, U.S., August 23, 2019. REUTERS/Jonathan Crosby

The revelation attracted attention on Capitol Hill, where Democratic Senator Elizabeth Warren sent a letter to Fed Chairman Jerome Powell demanding more information related to senior Fed officials’ trades during the Fed’s rescue efforts.

Ethics concerns had also been unearthed for Dallas Fed President Robert Kaplan and Boston Fed President Eric Rosengren. Both stepped down in late September and early October. The letter was sent on Monday, the day before Powell was set to face the Senate Banking Committee for a confirmation hearing for his second term.

In response to the public backlash, Powell in October unveiled “tough new rules” that bar senior officials from actively trading and prohibits the purchase of any individual securities. The new rules effectively only allow purchases of diversified investment vehicles (like mutual funds), and cannot be done during times of “heightened financial market stress” like the spring of 2020.

In his letter to President Joe Biden, Clarida did not cite a reason for the early resignation.

The Fed vice chairman was instrumental in revising the central bank’s approach to maximum employment and price stability, tweaking the Fed’s framework to tolerate inflation moderately above 2{614c55998ee2f2593d42882a86444f5648ce8ae9e914fe55020881091372b47b}.

“I am proud to have served with my Federal Reserve colleagues as we, in a matter of weeks, put in place historic policy measures that, in conjunction with fiscal policy, steered the economy away from depression and that have supported a robust recovery in economic activity and employment since.”

Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.

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