Fed reviews ethics polices after prolific trading uncovered

WASHINGTON (AP) — The Federal Reserve is reviewing the ethics policies that govern the financial holdings and activities of its senior officials in the wake of recent disclosures that two regional Fed presidents engaged in extensive trading last year.

Robert Kaplan, president of the Dallas Federal Reserve Bank, in 2020 traded millions of dollars of stock in companies such as Apple, Amazon, and Google, while Eric Rosengren, president of the Boston Fed, traded in stocks and real estate investment trusts, according to financial disclosure forms. Both pledged last week to divest those holdings after they were reported by The Wall Street Journal.

Comments made by Fed regional presidents can move markets and they have a hand in the Fed's interest rate policies. Such high-placed officials often have exclusive access to discussions about upcoming policy shifts that could benefit or be detrimental to some economic sectors, though they are prohibited from trading on that knowledge and are unable to trade in the period leading up to Fed meetings.

Both Kaplan and Rosengren said last week that their trades were permitted under the Fed's ethics rules. But they also said they would sell their holdings the end of this month and place the money in index funds, which track a wide range of securities, or in cash.

Still, the trades occurred last year when the Fed took extraordinary steps to buoy the U.S. economy and stabilize financial markets during the pandemic. The central bank cut its short-term benchmark interest rate to zero in March 2020 and has since purchased trillions of dollars in Treasury securities and mortgage-backed bonds to hold down longer-term interest rates.

One impact of those policies has been to make stocks a more attractive investment relative to bonds, which provide very little return when interest rates are...