Fed Chair Powell may need to sell millions in bonds under new rules

BY Reuters | ECONOMIC | 10/21/21 05:43 PM EDT

(Reuters) - Federal Reserve Chair Jerome Powell may need to sell as much as $3 million in bonds to comply with new rules issued by the U.S. central bank on Thursday, a review of his financial disclosures shows.

Powell appears to be the only Fed governor with holdings subject to divestment under the new policy, issued after a weeks-long review following revelations that some Fed policymakers had engaged in active securities trading last year even as the central bank was taking aggressive actions in financial markets.

In his government ethics filings for 2020, Powell reported total financial assets valued at as much as $98 million.

Among those were $1.25 million to $3 million in municipal bonds held by his family trusts.

Rules issued on Thursday prohibit Fed policymakers from owning such securities. Holders will be required to divest, a Fed official said.

No other Fed governors reported holdings that appear to be subject to mandated divestment.

Asked about his holdings at a news conference last month, Powell said that munis had always been "thought to be a pretty safe place for a Fed person to invest because as you know the lore was that the Fed would never buy municipal securities."

But after the pandemic hit the Fed began buying large swathes of the financial markets to keep from seizing up, including munis and corporate bonds.

It is unclear how long it will be before the new rules take effect.

(Corrects Powell's total reported assets to $98 mln)

(Reporting by Ann Saphir and Lindsay Dunsmuir; Editing by Alistair Bell)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

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