Fed’s Clarida Sold, Then Bought Stock Fund Before 2020 Central Bank Pledge

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Federal Reserve Vice Chair Richard Clarida sold at least $1 million of shares in a U.S. stock fund in February 2020 before buying a similar amount of the same fund a few days later on the eve of a major central bank announcement, according to an amended financial disclosure.

While the purchase transaction was previously disclosed and reported by Bloomberg News in October, the sale of the fund shares was first included in an amended financial-disclosure form filed with the government last month. The New York Times reported the latest filing earlier Thursday.

The new form showed Clarida sold $1 million to $5 million of the iShares MSCI USA Min Vol Factor exchange-traded fund on Feb. 24, then invested a similar range in the fund on Feb. 27.

The disclosure may raise further questions about what the soon-to-depart vice chair knew or anticipated about a Feb. 28 announcement from Fed Chair Jerome Powell, who signaled the central bank was preparing aggressive action to buffer the economy and financial markets from the coronavirus.

“In reviewing his materials, Vice Chair Clarida identified inadvertent errors requiring amendment,” a Federal Reserve spokesperson said. “He reviewed those transactions with our ethics office and submitted amendments” to his disclosure forms for 2019 and 2020.

Clarida didn't respond to a request through a Fed spokesperson for comment.

‘In Compliance'

The amended disclosure included a letter from a Fed ethics official saying that Clarida was “in compliance” with laws and regulations regarding conflicts of interest.

The form is dated Dec. 16, one day after Clarida attended the Federal Open Market Committee meeting on Dec. 14-15. His term as a governor expires at the end of this month, and President Joe Biden has nominated Governor Lael Brainard as the new vice chair. A Fed spokesperson said Clarida isn't planning to attend the Jan. 25-26 Fed policy meeting.

An ethics scandal engulfed the Fed last year. Two regional Fed chiefs announced their departures following revelations about their trading activity. One of the presidents, Eric Rosengren of Boston, said his resignation was due to a serious health condition.

Powell announced new investment guidelines in October, including banning purchases or sales during periods of market stress. A probe of Fed trading is under way by the central bank's inspector general, which declined to comment on whether Clarida is part of the investigation.

“How much questionable or worse trading is still undisclosed?” said Jeff Hauser, the director of the watchdog group Revolving Door Project. “And when will an independent investigation occur, since the Federal Reserve both appoints and can remove the inspector general on its own?”

Ethics Forms

Clarida's trades, as initially described in forms filed with the government ethics office, showed the sale of a Pimco bond fund on Feb. 27, 2020, and on the same day buying the Pimco StocksPlus Fund and the iShares MSCI USA Min Vol Factor ETF.

The amended form showed Clarida also sold the iShares ETF on Feb. 24 along with smaller amounts of a Schwab ETF and a different iShares ETF.

From Feb. 19 to Feb. 28 the S&P 500 stock index fell 13% as the spreading coronavirus shook investors worldwide. At 2:30 p.m. on Feb. 28, Powell took the unusual step of issuing a statement to assure markets the Fed was prepared to respond.

“The fundamentals of the U.S. economy remain strong,” Powell said at the time. “The Federal Reserve is closely monitoring developments and their implications for the economic outlook. We will use our tools and act as appropriate to support the economy.”

The Fed announced a half percentage-point rate cut on March 3 following an emergency FOMC meeting.

Stocks began a sharp rebound in March as the Fed began to roll out its broadest market rescue plan in history aimed at backstopping credit for everything from municipal bonds to junk-rated credit.