Two Fed presidents should be fired for trading stocks while in office, advocacy groups say

• Watchdog groups are urging the Fed to fire regional presidents who traded stocks while in office.
• Presidents Eric Rosengren and Robert Kaplan traded as Fed policy boosted financial markets.
• The officials "need to resign or be fired" for losing the trust of the American people, one group said.

Two Federal Reserve presidents who traded stocks during their terms can continue trading, but they shouldn't keep their jobs at the central bank, advocacy groups said earlier this week.

Boston Fed President Eric Rosengren and Dallas Fed President Robert Kaplan have been ensnared in a weeks-long controversy over stock trades they made while in office. Financial disclosures first reported by The Wall Street Journal showed both traded stocks last year as the Fed stepped in with unprecedented policy support. The central bank's emergency rate cuts, lending programs, and asset purchases propped up financial markets and helped stocks soar to numerous record highs through 2020 and 2021.

The presidents have since said they will sell all their individual stock investments by the end of the month, and the Fed has indicated it will review trading rules for its officials. And some maintain a harsher penalty should be levied.

Both Kaplan and Rosengren "need to resign or be fired for having lost the confidence and trust of the American people," Dennis Kelleher, president of financial regulation advocacy group Better Markets, wrote in a Tuesday letter. Both presidents partook in "pandemic profiteering trading conduct," and failing to discipline them paints the Fed as hypocritical, he added.

"How can the Fed insist that the financial industry 'raise standards' when its own standards are grossly deficient and enforcement, if any, appears highly questionable?" Kelleher said. "It's time for the Fed to do what leaders are supposed to do: Lead by example."

Separately, watchdog group Fed Up said the trades call the central bank's priorities into question. The presidents' activities are "only the most obvious reason" working Americans could lose trust in the Fed, Benjamin Dulchin, campaign director for Fed Up, told the Journal. That erosion of public confidence is reason enough for the presidents to resign, he added.

Others say the situation should be handled with more nuance. Rosengren "should immediately resign or be removed from office," Andrew Levin, a professor at Dartmouth College and a former Fed staff member, told the Journal. Kaplan, however, "should take administrative leave" until an external investigation into his trades can be completed.

The Dallas Fed president should provide more information on when he traded and the dollar amounts of each transaction, Levin said. Some of the trades were transactions of more than $1 million and included stakes in Apple, Amazon, Tesla, and Google.

An investigation into the trades can shed light on whether his influence on Fed policy boosted his investments' values, Levin told the Journal.

Fed Chair Jerome Powell could address the controversy Wednesday afternoon in a press conference following policymakers' September meeting. The chair directed the central bank to overhaul its rules for financial holdings earlier in September, with a spokesperson telling Politico the "trust of the American people is essential" for the Fed to operate effectively.

With the Fed poised to keep its market-supporting policy intact into the fall, the two presidents' sales underscore a fresh debate over who the central bank is helping most - and when those policies should be reversed.

[Editor's note: Insider Inc. has disclosed its asset-trading policies here, including the stipulation that "journalists who regularly cover business and financial news may not play the market: that is, they may not conduct in-and-out trading, speculate in options or futures or sell securities short." It's possible that the asset trades made by Kaplan and Rosengren wouldn't be permitted if they were Insider journalists covering the Fed.]