Rick Scott, Elizabeth Warren excoriate Federal Reserve Board’s ethics policy as ‘farce’

The Federal Reserve said Wednesday that it has insufficient evidence that inflation is slowing fast enough to justify a rate cut. Chair Jerome Powell said cuts are possible later in the year. (Photo by Anna Moneymaker / Getty Images)

Florida GOP U.S. Sen. Rick Scott and Massachusetts Democratic Sen. Elizabeth Warren are chastising Federal Reserve Board Chair Jerome Powell, telling him in a letter that the central bank’s recently announced policy to address illicit trading by Federal Reserve Bank officials is simply “a farce.”

The lawmakers have pressed the Federal Reserve to come up with a new policy to clean up the agency after reports about alleged insider trading surfaced among Fed officials in 2020. The heads of the Boston and Dallas Federal Reserve banks announced in early 2021 that they would retire early after it was revealed that they had made investment trades related to the real-estate industry while creating monetary policy.

In response, the Fed’s inspector general opened an investigation that resulted in a report published in April 2023 making six recommendations. Now the Fed has released another report, called the Policy for Addressing Covered Reserve Bank Employee Material Violations of the Investment and Trading Report and Financial Disclosure Rules , but Scott and Warren say it’s extremely weak, and were explicit in their letter sent to Powell on Monday that he and the Fed need to do better.

“The Board’s new policy is a dismal failure: It appears to lack the safeguards needed to prevent another trading scandal or provide accountability to the public for Fed officials that engage in prohibited trading activity,” Warren and Scott write.

“The policy fails to establish — or even recommend — any specific penalties for ethics violations. It leaves the decision of whether to punish a violator up to the chair and the board itself — a self-policing approach that makes a mockery of independent review.”

The pair write:

“This new enforcement policy, which comes nearly four years after the Fed trading scandal, is a massive failure. The gaps in this policy render effective enforcement of Fed trading rules impossible and indicate that, once again, you do not appear to be willing to act in order to prevent further scandals. You should withdraw this policy and replace it with an effective, enforceable approach to preventing illicit trading by Fed officials.”

Warren and Scott end the letter by posing 10 questions to Powell that they want him to answer by June 24.

Scott and Warren have worked over the past year-and-a-half on attempting to hold the Federal Reserve more accountable, including a bill filed in March 2023 that would require that the president appoint and the Senate confirm an inspector general for the Board of Governors of the Federal Reserve System and the Bureau of Consumer Financial Protection.

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