Another Fed Official Goes

Richard Clarida, the Fed Reserve Vice Chair, yesterday announced that he would be stepping down from his post this coming Friday, two weeks before his term was planned to end, after admitting last month that he had failed to fully disclose financial transactions at the start of the pandemic. He is the third Fed official to quit over a trading scandal linked to the central bank's efforts to save the economy. Fed Governor Lael Brainard will be appointed as the Vice Chair.

In October last year both Boston Fed President Eric Rosengren and Dallas Fed President Robert Kaplan admitted they had actively traded in stocks and other assets while the central bank was desperately trying to shore up financial markets and the world economy. Both Rosengren and Kaplan announced their resignations a week later.

Around February 2020 Clarida moved up to $5 million out of a bond fund and into stock funds, however, failed to declare it. The trade happened just 24 hours before Powell stated that the Fed might take action to cushion the economy as the pandemic took hold. He had previously claimed it was a ‘preplanned rebalancing’ of his portfolio. Being Powell’s number two, Clarida would have had a major say in the Fed’s policy decisions over the last few years. Last month he corrected his 2020 financial disclosure, referring to the oversight as an ‘inadvertent error’.

In his resignation letter to his ultimate boss, Biden, Clarida said he was proud to have worked at the Fed to help ‘steer the economy away from depression and that have supported a robust recovery in economic activity and employment since’.

In a statement Powell said he will miss Clarida’s ‘wise counsel and vital insights’, adding, ‘Rich’s contributions to our monetary policy deliberations, and his leadership of the Fed’s first-ever public review of our monetary policy framework, will leave a lasting impact in the field of central banking’.

One person who will not miss Clarida is Senator Elizabeth Warren, who opposed Powell’s renomination, and is his staunchest critic saying Powell had ‘failed as a leader’ amid fallout from financial trades made by top Fed officials last year. She reiterated a request for the central bank to release all available information on trades by Fed officials. ‘This revelation is just the latest evidence of a deep-rooted ethics failure at the Fed and the urgent need for a comprehensive information release about officials’ trading activity’ Warren wrote.

As of yesterday's close the S&P is 108% higher than its lows at the start of the pandemic.

Fixed Income Team