- Fed's Clarida made a multi-million dollar portfolio change the day before Jerome Powell hinted at policy action against COVID-19.
- He traded between $1 million - $5 million out of a bond fund into stock funds, financial disclosures show.
- The Fed's guide to conduct states that "the system should never be used for personal gain."
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Federal Reserve Vice Chair Richard Clarida switched between $1 million to $5 million from a bond fund into stock funds a day before Chairman Jerome Powell said coronavirus poses risks to the US economy, according to his financial disclosures from 2020.
Forms filed with the government ethics office show that Clarida shifted funds out of a Pimco bond fund on February 27 last year, and bought into the Pimco StocksPlus Fund and the iShares MSCI USA Min Vol Factor exchange-traded fund on the same day, Bloomberg reported on Friday.
The next day, February 28, Fed Chairman Jerome Powell said the central bank is closely monitoring COVID-19, and pledged to take action if required. "We will use our tools and act as appropriate to support the economy," Powell had said at the time.
As the pandemic began to grip the world, financial markets cratered, as investors prepared for lockdowns to damage economic growth. On March 3, the Fed decided to slash its benchmark interest rate by 50 basis points to between 1% to 1.25%, the first such cut since December 2008.
The rate was later cut further to near-zero and the Fed increased its bond holdings as part of the government's efforts to ease the effects of the pandemic. A low-interest rate environment is seen as a positive for markets because that spurs businesses and consumers to borrow, driving investment and boosting GDP growth.
The Fed carries clear instructions for its officials with respect to stock trading activity. The Voluntary Guide to Conduct for Senior Officials states that officials have a responsibility to "carefully avoid engaging in any financial transaction the timing of which could create the appearance of acting on inside information concerning Federal Reserve deliberations and actions."
It also states "the System should never be used for personal gain." Officials should be "careful to avoid any dealings or other conduct that might convey even an appearance of conflict between their personal interests, the interests of the System, and the public interest," the guide says.
Clarida's trades could raise some eyebrows, as two other Fed officials recently stepped down after controversial stock trades. Boston Federal President Eric Rosengren said he would resign early due to health issues, while Dallas Fed President Robert Kaplan cited the "distraction" of his own much-criticized trading as his reason.
Vice Chair Clarida's transactions "represent a pre-planned rebalancing to his accounts," a Fed spokesman said in a statement to Bloomberg. "The transactions were executed prior to his involvement in deliberations on Federal Reserve actions to respond to the emergence of the coronavirus and not during a blackout period. The selected funds were chosen with the prior approval of the Board's ethics official."
The Fed didn't immediately respond to Insider's request for comment.