Will Growing Fed Stock Trading Scandal Sink Powell’s Nomination?

The topic of income inequality has taken on increasing importance in recent weeks, particularly as inflation continues to hit levels not seen in 40 years. The rich just seem to get richer, while the poor continue to stay poor. And the middle class is finding it increasingly difficult to keep its head above water.

Prices of all sorts of goods and services are climbing higher than we’ve ever seen. The prices for food, gas, housing, and medical care are all rocketing upward, and wages aren’t keeping pace. But during a time when millions of American households are struggling to make ends meet, our politicians and government officials seem to be making money hand over fist through their investments.

The problem is that the money they’re making seems to be the result of insider trading, with Members of Congress and Federal Reserve officials directly benefiting from the knowledge they acquired through their positions. Congressional insider trading has become such a hot button issue that Speaker Pelosi is finally buckling to outside pressure and has decided to take action on legislation that would ban Members of Congress from trading stocks.

The Fed’s trading scandal has already cost the scalps of two regional Federal Reserve Bank Presidents, Robert Kaplan of the Dallas Fed and Eric Rosengren of the Boston Fed. Federal Reserve Board Governor Richard Clarida retired earlier than planned as a result of scrutiny over his stock trades. And now it has come to light that Fed Chairman Pro Tempore Jay Powell might be embroiled in a scandal of his own. Could it cost him the Chairmanship of the Federal Reserve?

Rules for Thee, Not for Me

The Federal Reserve has established blackout periods around each meeting of the Federal Open Market Committee, the group that establishes the direction of the Fed’s monetary policy. This is to prevent Fed officials from influencing markets through potentially telegraphing the direction of monetary policy.

The blackout periods ban Fed officials from speaking publicly from the Saturday one week before the Saturday before an FOMC meeting to the Thursday following an FOMC meeting. That’s a period of roughly 12 days or so in which Fed officials can’t discuss monetary policy publicly around an FOMC meeting. With eight meetings a year, that makes for 96 days in which officials can’t speak. But now it has come to light that Chairman Powell made millions of dollars worth of trades during several of the recent blackout periods.

The Fed’s voluntary conduct guide instructs senior Fed officials not to purchase or sell shares in any security during the blackout period. Yet Chairman Powell on numerous occasions executed trades during those blackout periods, including on the days on which the FOMC was meeting.

It’s certainly possible that Powell gave instructions for those trades before the blackout periods, which would be acceptable. And the rules are voluntary, so it isn’t a federal statute or anything that Powell violated. But it still has the appearance of impropriety. And when you’re the Chairman of the agency in charge of monetary policy, everything you do should be beyond reproach.

Congress is coming in for a world of grief after the trading activities of Pelosi and others have come to light. And while Pelosi initially declined to try to crack down on Congressional stock trading, public pressure has forced her hand.

The Fed is similarly planning to enact stricter trading rules for its officials, but with the latest revelations will it cost Powell his position? It’s already odd that, despite being approved by the Banking Committee 22-1, his nomination has not been voted on by the full Senate. In fact, his position as Chairman has lapsed, forcing the Fed’s Board of Governors to appoint him as Chairman pro tempore, pending the Senate’s vote.

It’s certainly not too late for Biden to withdraw Powell’s nomination, or to nominate someone else. Is he biding his time, waiting to see what happens after the March FOMC meeting? Is he waiting to see whether the fury facing Congress may also envelop the Fed?

Regardless of Powell’s ultimate fate, the latest revelations have further undermined confidence in the Fed. If Fed officials are seen as trading on insider information and using monetary policy to benefit their own financial interests, it will further erode confidence that the Fed and its monetary policy can help the economy.

Perhaps that’s a good thing, as the root of every recession and financial crisis for the last 109 years has been the Fed’s conduct of monetary policy, through its expansion and (occasional) contraction of the money supply. If the public loses confidence in the Fed and begins to believe that the Fed’s monetary policy isn’t helping the economy, maybe that might allow for more pressure to be put on the Fed to pull back on its monetary expansion.

On the other hand, this scandal could also be just what President Biden needs to replace current Fed officials with ones who will be more compliant and who will ease at a moment’s notice. That would result in looser monetary policy and even more economic destruction.

The Need for Asset Protection

What this episode should illustrate in no uncertain terms is the need for asset protection and wealth preservation. It’s clear that Fed officials are just as self-interested as anyone else, and that monetary policy is more concerned with preserving the financial well-being of Wall Street and its cronies than it is about improving the health and functioning of the economy.

Don’t trust the Fed to right the ship, to fight inflation, or to be the guarantor of economic stability. The only person who can protect your wealth against inflation and safeguard the stability of your retirement savings is you. And with Fed policy right now unable or unwilling to combat inflation, it’s up to you to make sure your retirement savings aren’t devalued into oblivion.

Thankfully there’s an asset that’s been trusted for hundreds of years to defend against inflation: gold. Gold’s track record over the past 50 years has been undeniably strong, particularly against inflation. During the 1970s stagflation, for instance, gold’s average annualized gains were over 30% per year. If the 2020s end up being another period of stagflation, and gold makes similar gains, gold owners could do very well.

But time is of the essence, as rising inflation could quickly wipe out much of the value of your retirement savings if you don’t take action quickly. If you’ve been thinking about investing in gold, waiting on the fence to see which way markets move, now is the time to start making decisions. The sooner you protect your assets, the sooner you can safeguard your retirement.

The precious metals experts at Goldco have over a decade of experience helping investors just like you benefit from gold. Give Goldco a call today to find out how you can put gold to work protecting your wealth.