The rich get rich, but what’s the price?
Before talking too much, make sure your hands are clean.
Calling to order usually makes the biggest mess in the US. Twelve regional Feds revealed financial information concerning their presidents and caused a real sensation: Boston Fed’s Eric Rosengren and Dallas Fed’s Robert Kaplan were involved in trading activities in 2020! The former traded real estate investment trusts and the latter – stocks and bonds. At the same time, Rosengren is famous for severely criticizing central-bank purchases of mortgage-backed securities as they “blow up bubbles in the housing market.” Kaplan supported the idea of the Fed’s buying corporate debt, while trading the securities of the funds working with those assets. Before talking too much, make sure your hands are clean!
Don’t play against the Fed – that’s the principle investors learn from the very beginning. What was discussed during the FOMC’s meeting used to be a big secret just a few tens of years ago. Then, we got access to the FOMC’s minutes and transcripts. Based on central-bank presidents’ statements, the market can understand what the Fed thinks about the current and prospective economic state. And now we found out there are some people within the Federal Open Market Committee who receive first-hand information! They attend meetings where crucial market decisions are made! There are insiders in the world’s biggest central bank! How do you like it!
And investors believe the Fed is the Messiah who saved the global economy from recession using a crazy monetary expansion in 2020. It turns out, very few people want to make the world a better place. Most people just want to get the best share for themselves. I even dare not think what might happen if someone from the FOMC insists on aggressively raising the federal funds rate and starts selling US stocks on the sly. The rich get rich, but what’s the price?
Rosengren and Kaplan’s shady dealings affect the whole central bank. After the financial information was revealed, the Boston and Dallas Federal Reserve Banks presidents said they would sell their securities by 30 September and invest the money in diversified indexed funds or cash savings. They also said they would stop their trading and investing activities to avoid a conflict of interest even though such activities were in line with the Fed’s ethics. That could be the goal the Fed was pursuing when starting the investigation.
– What’s the hardest thing about being a doctor?
– Guessing what a patient likes the most and then prohibiting that.
Are the insiders in danger? Not really. Eric Rosengren is almost on a pension. Robert Kaplan’s authority has been undermined, but he will hardly voluntarily announce his retirement. They got nervous, for sure, but we all know the best words we can hear in this world are “Don’t do that anymore!”
Still, they left a bad aftertaste. A clear conscience is a luxury these days. Even FOMC officials aren’t as clean as we could suppose.
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