Federal Reserve probing Bostic’s trading after blackout period transactions

The Federal Reserve is looking into trades that Raphael Bostic, the head of the central bank’s Atlanta district, made during restricted periods.

In the wake of disclosures that there were multiple incidents over the past several years in which Bostic’s investment activity violated Fed restrictions and blackout periods, the central bank said its Office of Inspector General would be reviewing the matter further. There also were incidents were Bostic incorrectly reported his assets.

Fed Chair Jerome Powell “has asked the Office of Inspector General for the Federal Reserve Board to initiate an independent review of President Bostic’s financial disclosures,” a Fed spokesman said. “We look forward to the results of their work and will accept and take appropriate actions based on their findings.”

Trading by Fed officials over the past several years has been a hot-button issue. Disclosures that multiple officials had been involved in investment moves at a time when the Fed was taking steps to support markets preceded the early retirements of two regional presidents, Eric Rosengren of Boston and Robert Kaplan of Dallas.

There also were disclosures that trades from Powell himself had been involved in trades during blackout periods in 2020. Trades from former Vice Chair Richard Clarida also came under question, though the inspector general cleared both officials of wrongdoing.

The controversy also led to a revised policy that severely restricts the moves Fed officials can make.

Bostic said that in his case the violations were not intentional and occurred because of his reliance on a third-party manager who was handling his investments. He said his investments are in accounts in which neither he nor his investment adviser can direct.

In a statement issued along with his amended disclosure forms, Bostic apologized for the controversy.

“I recognize it is my responsibility to understand and abide by every obligation of this office,” he said. “I want to be clear: at no time did I knowingly authorize or complete a financial transaction based on nonpublic information or with any intent to conceal or sidestep my obligations of transparent and accountable reporting.”

He also noted in the statement that his holdings of Treasurys in 2021 exceeded limits outlined in Fed guidelines. The Fed sets interest rates through the use of its fed funds rate, which generally have a close correlation with Treasury yields.

On top of previous regulations in place, the Fed in February added to restrictions on what its members can do. The new regulations prohibit top officials from holding individual stocks, bonds and cryptocurrencies, along with other assets. Those rule changes also mandated a review from both the Atlanta district and the Fed’s main D.C. operation, leading to the disclosures of Bostic’s filing mistakes.

“We welcome this review and will cooperate fully to ensure this matter is effectively resolved,” the Atlanta Fed said in a statement.

Controversy over the investment moves from Fed officials hit following reports, first in the Wall Street Journal, that some members had engaged in trading around the time that policymakers were contemplating taking actions in the early days of the Covid pandemic.

The Fed ended up slashing benchmark interest rates to near-zero and implementing an aggressive bond-buying program that added nearly $5 trillion to the central bank’s balance sheet.

“I sincerely regret if my actions raise questions about my standards, behavior, or motivation, the Federal
Reserve Bank of Atlanta’s systems and processes to maintain the public trust, or the commitment of the Federal Reserve to transparency and accountability in fulfilling its mission,” Bostic said.