Federal Reserve investigating Bostic trading after blackout period trades

Federal Reserve Bank of Atlanta President and CEO Raphael W. Bostic speaks at a European Financial Forum event in Dublin, Ireland, Feb.

Clodagh Kilcoyne | Reuters

The Federal Reserve is reviewing transactions that Raphael Bostic, the chief of the central bank’s Atlanta district, made during restricted periods.

Following revelations that there have been several incidents over the past few years in which Bostic’s investment activity violated Fed restrictions and blackout periods, the central bank said its Inspector General’s office would look into the matter further. There have also been incidents where Bostic has incorrectly reported its holdings.

Fed Chairman Jerome Powell “has directed the Office of the Inspector General of the Federal Reserve to initiate an independent review of Chairman Bostic’s financial reporting,” a Fed spokesman said. “We look forward to the results of their work and will accept and take appropriate action based on their findings.”

The trade of Fed officials over the past few years has been a hot issue. Revelations that several 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 chairmen, Eric Rosengren of Boston and Robert Kaplan of Dallas.

There were also revelations that Powell had been involved in dealings during blackout times in 2020. Former Vice President Richard Clarida’s dealings have also come into question, although the Inspector General has cleared both of them of wrongdoing.

The controversy has also led to a revised policy that significantly restricts the actions Fed officials can take.

Bostic said that in his case, the breaches were unintentional and occurred due to his reliance on a third-party manager to manage his investments. He said his investments are in accounts that neither he nor his investment adviser can manage.

In a statement released along with its modified disclosure forms, Bostic apologized for the controversy.

“I acknowledge that it is my responsibility to understand and comply with all obligations of this office,” he said. “I want to be clear: at no time did I knowingly authorize or conduct a financial transaction based on nonpublic information or with the intention of concealing or circumventing my transparent and responsible reporting obligations.”

He also noted in the statement that his holdings of Treasuries in 2021 exceeded the limits set out in Fed guidelines. The Fed sets interest rates using its federal funds rate, which generally has a close correlation with Treasury yields.

In addition to previous regulations in place, the Fed in February added to restrictions about what its members can do. The new regulations prohibit senior officials from owning individual stocks, bonds and cryptocurrencies, as well as other assets. These rule changes also required a review of both the Atlanta District and the Fed’s main DC operation, leading to the disclosure of Bostic’s misclassifications.

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

The controversy over Fed officials’ investment moves followed reports, first in the Wall Street Journal, that some members had engaged in trades at a time when policymakers were considering taking measures in the early days of the Covid pandemic.

The Fed ended up cutting 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 that if my actions raise questions about my standards, behavior, or motivation, the federal government
Reserve Bank of Atlanta’s systems and processes for maintaining public trust, or the Federal Reserve’s commitment to transparency and accountability in fulfilling its mission,” Bostic said.

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