Federal Reserve Vice Chair Richard Clarida talks on the phone during the three-day "Challenges for Monetary Policy" conference in Jackson Hole, Wyoming, U.S., August 23, 2019.
Federal Reserve Vice Chair Richard Clarida talks on the phone during the three-day "Challenges for Monetary Policy" conference in Jackson Hole, Wyoming, U.S., August 23, 2019. Reuters / jonathan crosby

Trading activity by Federal Reserve Chair Jerome Powell and former Vice Chair Richard Clarida violated no rules, the Fed's independent watchdog said on Thursday, putting an apparent end to one chapter in an ethics scandal that embroiled the central bank last year.

"Based on our findings, we are closing our investigation" into the pair's investment activities from 2019 to 2021, the Office of the Inspector General said.

A separate investigation into the two regional Fed bank presidents whose investments touched off the public outcry to begin with is ongoing, it added, signaling that at least one more chapter in the saga remains to be written.

The four-page memo posted to the OIG's website was the result of a nine-month investigation by the independent watchdog following the disclosure last September that Dallas Fed President Robert Kaplan and Boston Fed President Eric Rosengren had been actively engaged in the financial markets in 2020.

That was the year the central bank launched a barrage of rescue programs and bond purchases to stem the economic fallout from the pandemic, and critics raised questions about potential conflicts of interest and propriety.

Both policymakers said they complied with then-current ethics rules. Both then retired early. Powell requested an independent probe, and set about revamping rules around Fed policymaker trading and investment.

Powell's own investment portfolio came under scrutiny, and Clarida drew separate public fire in late December after he corrected a previous financial disclosure to show he traded in a stock fund in February 2020 as the Fed was about to intervene in markets.

The inspector general said it reviewed relevant records, Board email accounts, financial disclosure reports, brokerage statements and other trading data, as well as conducted interviews with "relevant individuals" as part of its investigation.

It did find that Clarida failed to report several trades on required disclosure forms and that a financial adviser for the Powell family trust executed five trades during the sensitive period around a Fed policy-setting meeting, when trading is not allowed.

But "we did not find evidence to substantiate the allegations that former Vice Chair Clarida or you violated laws, rules, regulations, or policies related to trading activities as investigated by our office," the OIG said in the memo, dated July 11 and addressed to Powell.

Clarida said the watchdog "determined conclusively that I did not violate any statutes, rules, regulations, or standards."

Clarida left his post in January, a couple of weeks before his term was up.

"He did not act with inside information. That's exactly what they were looking for, exactly the purpose of the investigation," said Tony Fratto, a Clarida spokesperson.

Better Markets, a nonprofit advocating stronger financial regulation, said the report missed the mark, charging that its scope of review was too narrow and that it was not credible because the inspector general is hired by the Fed chair, rather than independently appointed.

The Fed early this year adopted an extensive set of restrictions on trading by policymakers and senior Fed staff to prevent any future issues, barring among other things any trading during periods of market stress and banning the holding of individual bonds and the purchase of individual stocks.