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Fed’s Richard Clarida to Leave Vice Chair Position Two Weeks Early

Richard Clarida, vice chairman of Federal Reserve System, speaks during the National Association of Business Economics (NABE) economic policy conference in Washington, D.C., U.S., on Tuesday, Feb. 25, 2020. This year's annual conference theme is "Examining Policy Prescriptions in an Election Year."

Federal Reserve Vice Chair Richard Clarida said Monday he will resign two weeks before his term expires, following new revelations about his stock trading on the eve of a major central bank announcement in early 2020. 

Clarida, 64, will leave the Fed’s Board of Governors on Jan. 14, ahead of the expiration of his term as governor on Jan. 31, according to a letter to President Joe Biden, who picked Fed Governor Lael Brainard as vice chair in November. The missive made no mention of Clarida’s trading.His unexpected early departure — in the shadow of an ethics scandal that engulfed the Fed last year — follows reports last week that Clarida had 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. The following day, Chair Jerome Powell signaled the central bank was preparing aggressive action to buffer the economy and financial markets from the coronavirus.

Read More: Fed’s Clarida Sold, Then Bought Stock Fund Before Powell Pledge

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.

“Rich’s contributions to our monetary policy deliberations, and his leadership of the Fed’s first-ever public review of our monetary policy framework, will leave a lasting impact in the field of central banking,” Powell said in a statement Monday.

The course catalogue at Columbia University, where Clarida is a professor, showed him listed as teaching there again this semester.

Last fall, 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.

Fed Probe

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.

The resignation will raise questions about the scope of the inspector general’s investigation and controls around ethics rules, even though the Fed has revised them. A Fed ethics officer, in a letter attached to Clarida’s amended filing, said the vice chair was “in compliance” with laws and regulations regarding conflicts of interest.

“It is a really big stretch for the ethics officers to be defending these transactions,” said Kaleb Nygaard, senior research associate at the Yale Program on Financial Stability. “This is an issue of public confidence.”

A Fed spokeswoman declined to comment beyond the ethics officer’s letter appended to Clarida’s amended disclosure.

Clarida has been a member of the board and vice chair since September 2018. The Senate Banking Committee will hold a hearing on Brainard’s nomination on Thursday, two days after Powell appears before the panel to discuss his nomination for a second term as chair.

Suspicious Aura

Roberto Perli, a former Fed economist and partner at Cornerstone Macro LLC, said he believed the vice chair’s stock-trading activity was in good faith, but it leaves an aura of suspicion around his motives.

“I don’t know if that’s the reason for his early resignation, but if it is, Clarida did the right thing for the good of the institution, as anyone would expect of him,” Perli said. “I wouldn’t discount the possibility that he left for other reasons. The last few weeks at the Fed are more a formality than anything else.”

Senator Elizabeth Warren, who opposes Powell’s renomination, cited the latest report on Clarida in a letter to Powell earlier Monday, where she reiterated her request for the Fed to release all available information on trades by central bank officials.

“This revelation is just the latest evidence of a deep-rooted ethics failure at the Fed and the urgent need for a comprehensive information release about officials’ trading activity,” Warren wrote.

‘Questions Remain’

In a separate comment on her Twitter account, she wrote: “I’m glad Richard Clarida resigned after public outrage for his unethical actions, but many questions remain.”

Powell can expect to be asked about the trading issues at Tuesday’s hearing, “including questions about when and how he was informed about Vice Chair Clarida’s securities transactions,” said Andrew Levin, a Dartmouth College professor and former special adviser to the Fed’s board.

Former Treasury Secretary Lawrence Summers on Friday said “it should be inconceivable” for a Fed official to trade in one direction then three days later in the other direction on a seven-digit scale.

Speaking on ‘Balance of Power’ with David Westin on Bloomberg Television, Summers — a paid contributor to Bloomberg — noted that Powell has moved aggressively to put in place new rules, which he viewed as quite rigorous.

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