How Big a Deal Is Powell’s Million-Dollar Stock Trade?
(Bloomberg Opinion) -- The American Prospect, a revered journal of the American progressive left, has published a piece highlighting that Jerome Powell, chairman of the Federal Reserve, sold between $1 million and $5 million in stock on Oct. 1 last year. He did so through a Vanguard fund that tracks the total market. How big a deal is this?
I would argue, not very. The full disclosure form can be found here. It looks like the Fed chairman, a rich man from his career in private equity, holds an impeccably dull investment portfolio, virtually all passive and spread across asset classes. He appears not to have done much trading last year, apart from small purchases and sales that look like either rebalancing, or the use of income to reinvest.
The one big trade was that sale on Oct. 1. It covered the whole market so no inside knowledge of particular sectors would have helped. Here is that trade, mapped on the Wilshire 5000 index which covers the broad U.S. market:
On the face of it, if that trade was made for investment reasons, it was lousily timed. Selling just before the top in February, or buying at the bottom a month later, would have been lucrative. It would have also been very suspicious. Selling on Oct. 1 meant that Powell missed out on a 35% gain in the year since (between $350,000 and $1.75 million given what we know about the scale of the trade). He had already made his hugely important speech at Jackson Hole in August, and followed through with the Fed’s regular meeting in September. At that point, his publicly expressed intentions, on which he subsequently followed through, were dovish. That should have made him keen to buy rather than sell.
The American Prospect puts together a narrative that makes the transaction seem more sinister. Apparently, Powell had four conversations with then Treasury Secretary Steven Mnuchin that day. The Fox Business Network, popular with conservatives, followed the story and headlined it: Fed's Powell sold up to $5M in stock in 2020 before market tanked. That seems an extreme use of the verb “to tank” to me. The stock market’s performance was unremarkable over the days that followed, wobbling ahead of the election, and it soon went into overdrive.
There is a real issue here. Senior figures at the Fed must be careful to avoid any sign of impropriety. But unless they are to be barred from trading altogether, it’s hard to see anything wrong with this. The trade lost money, and it conflicted with inside knowledge of the Fed’s intentions.
Powell needs to be reappointed, or his successor chosen, by early next year. There are arguments for and against renewing him. This is how the contract on Powell getting a second term moved on the PredictIt betting market in the 24 hours to 6 p.m. New York time. It’s plain where the story comes out:
Bettors commented that the mere fact the story had emerged and been promoted by outlets at both ends of the political spectrum suggested a serious effort was afoot to bring Powell down. This is a dangerous game. Whoever is Fed chairman next year will have difficult decisions to make and communicate. There is a history of the market misunderstanding new occupants of the chair. There are other good candidates, but the bar for replacing Powell should be high. His sale of an index fund isn’t a valid reason to replace him.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
John Authers is a senior editor for markets. Before Bloomberg, he spent 29 years with the Financial Times, where he was head of the Lex Column and chief markets commentator. He is the author of “The Fearful Rise of Markets” and other books.
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