January 12, 2022

Vice Chair Richard Clarida resigns amid trading scandal

 Recently, the Fed has been in the limelight. Market participants closely monitored all the news about its actions, statements, etc. Perhaps the main event was a trading scandal that occurred in autumn last year. It turned out that some members of the Board of Governors sold and then repurchased shares in the stock fund. At that time, the Fed bought the same stocks as part of the QE program. Many analysts condemned such actions as it was unfair trading. Fed members have access to information that is unknown to other market participants. Therefore, they could use it for their own purposes, which is unacceptable given their high positions. Additionally, at the end of the year, the Fed began to taper its quantitative easing program and signal its readiness to hike the key rate. Two Fed governors, Eric Rosengren and Robert Kaplan resigned in the fall. So, Vice Chair Richard Clarida is the latest Fed official to resign. Some market strategists believe that this scandal has undermined the Fed's credibility, especially before the interest rate hike cycle. Thus, the resignation was the most acceptable option for everyone. Clarida was a bit luckier than others as was scheduled to finish his term at the end of this month. As a result, he will resign about two weeks early. Clarida has been part of an inner circle of Fed officials close to Powell.


Interestingly, a week earlier, some media agencies reported that Clarida concealed his transfer of several million dollars from the bond fund to the stock fund just a few days before the announcement of emergency stimulus measures. The vice-chairman himself called it a mistake. Such actions of Fed officials spoil the reputation and image of the central bank. According to ethics rules, they should go through several steps and checks before entering the stock market. In October 2021, Jerome Powell has already announced the tightening of the rules for the access of Fed governors to the stock market. In particular, a ban on the purchase and sale of shares during periods of market headwinds has been introduced. However, many news magazines, in particular Bloomberg, believe that the scandal, which led to the resignation of three high-ranking officials, raises a lot of questions about the supervision of these ethics rules within the organization.