Jerome Powell Will Face 17 Reporters Today at a Press Conference as the Fed Faces the Worst Trading Scandal in Its History. How Many Reporters Will Punt on the Topic?

September 22, 2021

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Jerome (Jay) Powell, Chairman of the Federal Reserve Board

Michael Derby of the Wall Street Journal broke the story on September 7 that Dallas Fed President Robert Kaplan was trading in and out of millions of dollars of individual stock positions in 2020. Last year was a year of unprecedented crisis when Kaplan was a voting member of the Federal Open Market Committee (FOMC) and had access throughout the year to non-public, market-moving information.

On September 18, Wall Street On Parade reported that Kaplan was not just trading individual stocks but was, astonishingly, also trading S&P 500 futures contracts in transactions of more than $1 million in 2020. The most popular and liquid S&P 500 futures contract is the E-mini, which can provide a trader with as much as 95 percent leverage. The stock exchanges are only open in the U.S. from 9:30 a.m. to 4 p.m. (EDT) weekdays, but the E-mini trades continuously from 6 p.m. Sunday night through 5 p.m. on Friday evening (EDT), allowing someone who might wish to trade on inside information far greater opportunities to do so.

Adding to alarm bells around Kaplan’s trading, the Dallas Fed’s communications team declined to provide a yes or no answer to our question as to whether Kaplan shorted the market in 2020. (Shorting means to place a trade that grows in value if the market or security declines in price.)

If a member of the central bank of the United States shorted the market in 2020, in the midst of an economic and health crisis, it would be interpreted by millions of Americans as betting against the country. There is not a good explanation we can think of for why the Dallas Fed’s communications team would not want to get that question quickly disposed of.

Kaplan is a highly sophisticated trader, having worked at Goldman Sachs for 22 years and rising to the ranks of Vice Chairman and a member of its Management Committee. He has written multiple books on what it means to be an effective leader. If anyone should understand the tenets of avoiding conflicts of interest it is Kaplan.