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Two senior Federal Reserve officials whose trading activity prompted the US central bank to launch an ethics review said on Monday they will resign from their positions.
Robert Kaplan, president of the Federal Reserve Bank of Dallas, announced his intention to step down just hours after Boston’s Eric Rosengren said he would end his more than three-decade tenure at the Fed branch early and depart on September 30 due to health issues.
Kaplan, who has been at the helm of the Texas-based Fed branch for six years, cited recent scrutiny over his investments in financial markets, which were disclosed earlier this month.
“The Federal Reserve is approaching a critical point in our economic recovery as it deliberates the future path of monetary policy. Unfortunately, the recent focus on my financial disclosure risks becoming a distraction to the Federal Reserve’s execution of that vital work,” he said in a statement. “For that reason, I have decided to retire as president and CEO of the Federal Reserve Bank of Dallas.”
The announcements follow a tumultuous period for the Fed presidents, after reports that they had been active investors while the US central bank was aggressively shoring up financial markets to stem the damage from the pandemic last year.
Rosengren was initially set to retire in June 2022, when he would have reached the mandatory retirement age for the position. Rosengren on Monday cited a worsening kidney condition, having qualified for the transplant list in June last year, according to a statement.
“It has been an honour to serve at the Federal Reserve System, in a job where one can be constantly engaged in pursuing the economic and financial wellbeing of the country and New England,” he said on Monday. “I know that my colleagues will build on our progress, and continue making a difference for the public we serve.”
Kaplan disclosed that he held stakes worth more than $1m in 27 publicly traded companies, funds and alternative investments, while Rosengren listed stakes worth at least $151,000 in four real estate investment trusts.
Both Fed presidents agreed to sell their portfolio of shares by the end of September and hold the proceeds in cash or passive funds — a move Rosengren attributed at the time to [avoiding “even the appearance of a conflict of interest”.
Fed chair Jay Powell has since ordered a sweeping review of the Fed’s ethics guidelines and said that the central bank would seek to strengthen rules regarding the trading activities of senior officials.
In a statement on Monday, Powell said of Rosengren’s tenure: “Eric has distinguished himself time and again during more than three decades of dedicated public service in the Federal Reserve System . . . In addition to his monetary policy insights, Eric brought a relentless focus on how best to ensure the stability of the financial system. My colleagues and I will miss him.”
Powell also expressed gratitude for Kaplan’s time at the Fed, calling him a “valued colleague”.
Rosengren’s position will be filled on an interim basis by Kenneth Montgomery, first vice-president and chief operating officer of the Boston branch. Preparations to find the next president are “well under way”, according to the bank. Kaplan, who will step down on October 8, will be replaced temporarily by Meredith Black, first vice-president of the Dallas Fed.
The next Boston Fed president will be a voting member on the policy-setting Federal Open Market Committee in 2022. The Dallas Fed president does not have voting power until 2023.
Fed officials are evenly divided on the prospects of a US interest rate increase as early as next year, according to new individual projections published by the central bank last week, with at least three rate rises pencilled in by the end of 2023.
Before it tightens monetary policy, the Fed is tasked with winding down its $120bn-a-month asset purchase programme, which has been in place since last year and was set to continue until the central bank saw “substantial further progress” on achieving average 2 per cent inflation and maximum employment.
The Fed is now widely expected to announce at its next policy meeting in November that it will begin reducing the pace of those bond purchases.