Senator Warren Raises Pressure on Fed Over Ethics Lapses

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(Bloomberg) -- Senator Elizabeth Warren stepped up pressure on the Federal Reserve over its recent ethics lapses, sending a fresh letter to Chair Jerome Powell after two more incidents that she called “egregious and embarrassing.”

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The Massachusetts Democrat has been at the forefront of demanding answers from the Fed after revelations of unusual trading activities by some of its leaders engulfed the central bank in a damaging ethics scandal in 2021.

Two regional Fed presidents retired early in the aftermath of those disclosures, prompting Powell to tighten up the rules on what securities officials can own and when they can trade in financial markets.

But the central bank remains under scrutiny. Atlanta Fed President Raphael Bostic recently disclosed that he had revised his financial disclosures. In a separate incident, the St Louis Fed was forced to explain the circumstances under which its president, James Bullard, attended a Citgroup Inc. event in Washington to which media were not invited.

In her letter on Monday, Warren said the new incidents “raise fresh questions about the culture of corruption at the Fed.” She also sought details of communications between Fed ethics staff and officials regarding their trading.

“The revelations underscore my long-held concerns that Fed officials could be seen as profiting from their positions by leveraging sensitive information, and that they are overly cozy with the Wall Street banks they oversee,” Warren wrote. “These conflicts of interest erode the Fed’s integrity and make a mockery of its vaunted independence.”

A Fed spokesperson confirmed the central bank received Warren’s letter but declined to comment further.

Powell has asked the Fed’s inspector general to review Bostic’s financial disclosures. The St. Louis Fed said it would think differently about accepting such invitations in the future.

Policymakers ‘Accountable’

Powell was asked about the incidents during a Nov. 2 press conference following a meeting of the policy-setting Federal Open Market Committee. The chair said that at the beginning of the meeting, the FOMC had discussed “holding ourselves individually and collectively accountable” and that all 19 members of the FOMC had recommitted to following the highest ethical standards.

“The public’s trust is really the Fed’s -- and any central bank’s -- most important asset,” Powell told reporters. “Any time one of us -- one of the policymakers -- violates or falls short of those rules, we do risk undermining that trust. And we take that very seriously.”

Warren asked Powell to share a summary of the discussion Fed officials had regarding accountability and requested that the Fed provide any related documents.

In addition to the scrutiny over their ethics practices, Fed officials are facing political pressure as they aggressively hike interest rates to squash the strongest inflation in a generation. Powell and his colleagues raised rates by 75 basis points last week for the fourth straight time and the Fed chief warned that they will need to go higher to cool stubborn price pressures. Some Democrats have asked Powell to proceed cautiously and to keep the Fed’s employment mandate in mind as it rolls out rate hikes that could lead to job losses.

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