James Bullard, the president of the Federal Reserve Bank of St. Louis, spoke last Friday at an off-the-record, invitation-only forum held by Citigroup, and open to clients, on the sidelines of the World Bank and International Monetary Fund’s annual meetings in Washington.
Mr. Bullard’s remarks touched on both monetary policy and issues of financial stability during a tumultuous week in the global economy. It was the kind of speaking event that the news media would typically be able to attend given the potential for market-moving news, but Mr. Bullard and his staff did not alert reporters.
Mr. Bullard was not compensated for his speech, a spokesperson for the Federal Reserve Bank of St. Louis said. But he appeared behind closed doors and in front of Wall Street investors at a critical juncture for markets, when every comment a central banker makes has the potential to move stocks and bonds. It gave the attendees a behind-the-scenes snapshot into the thinking of a voting Fed policymaker and Citi a possible chance to profit from his comments, inasmuch as clients may use the bank’s services in hopes of receiving similar access in the future.
“This is not normal,” said Narayana Kocherlakota, a former president of the Federal Reserve Bank of Minneapolis. With a bank’s clients involved, he added, “the optics are terrible.”
The Federal Reserve Bank of St. Louis called the discussion informal and said Mr. Bullard had participated in the event in the past. It also noted that he had given an interview to Reuters earlier in the day with remarks similar to those he made at the Citi event, and appeared at other forums in Washington on Friday and Saturday. As a result, they said, the public had access to his views.
But a person who attended the speech, who spoke on the condition of anonymity because the forum was meant to be off the record, said Mr. Bullard had also suggested during his comments that based on the historical record, the market gyrations in response to the Fed’s moves had been less pronounced than might have been expected given how much rates have increased. No such comments were included in the Reuters article.
A transcript of the event released by the St. Louis Fed on Thursday afternoon, after The New York Times reported on it, confirmed that Mr. Bullard had discussed the market reaction.
Mr. Bullard had shared that view on financial stability in public before, the St. Louis Fed spokesperson said.
At the Citi event, Mr. Bullard also reiterated his view that another large three-quarter-point rate increase could be appropriate in December, which the Reuters article noted.
“He shared his views with media before and after the event and covered similar ground in other recent public remarks,” the St. Louis Fed said in the statement it posted online on Thursday. “But we are listening to the commentary around this and will think differently about this in the future.”
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This was not the first time that a Fed official had spoken before an invitation-only group of people who may have benefited from talking to him. In March 2017, Stanley Fischer, then the Fed’s vice chair, gave a closed-door speech at the Brookings Institution that drew some outcry. More commonly, Fed officials meet with economists and traders from banks and investment funds in small-group settings to exchange information about markets and the economy.
And Fed officials regularly speak at bank events, though their remarks are typically flagged to the news media and either open to them, streamed or recorded. That was the case with a UBS event where Mr. Bullard was a speaker on Saturday.
What we consider before using anonymous sources. Do the sources know the information? What’s their motivation for telling us? Have they proved reliable in the past? Can we corroborate the information? Even with these questions satisfied, The Times uses anonymous sources as a last resort. The reporter and at least one editor know the identity of the source.
What is notable about Mr. Bullard’s Citi meeting is that it was neither an information-gathering excursion with a handful of people nor a publicly available speech. About 40 people attended the event, which had a formal agenda and was advertised to Citi clients, two people familiar with it said. Mr. Bullard spoke for 10 minutes before answering attendee questions.
“It’s important, even mission-critical, that the Fed is in open dialogue with all sectors of the economy,” said Kaleb Nygaard, who studies the central bank at the University of Pennsylvania. “Much of the letter, as well as the spirit, is that the central bankers are supposed to be on the receiving end of the information.”
The Citi forum also featured central bankers from outside the United States — including Anna Breman, deputy governor of Sweden’s Riksbank, and Olli Rehn of the European Central Bank’s governing council — but at least some of their appearances were flagged to the news media and some of their speeches were published.
It is not clear if Mr. Bullard’s speech violated the Fed’s communication rules, but some outside experts said they seemed to tiptoe near the line.
The Fed’s rules do not explicitly bar central bankers from closed-door meetings, though they do say that, “to the fullest extent possible, committee participants will refrain from describing their personal views about monetary policy in any meeting or conversation with any individual, firm or organization who could profit financially” unless those views have already been expressed in their public communications.
The rules also say officials’ appearances should “not provide any profit-making person or organization with a prestige advantage over its competitors.” That Citi was able to offer a closed sit-down with a central bank official may have given it such an advantage, even if his remarks did not break major news.
“Citi is flexing here” in its ability to offer “privileged access,” said Jeff Hauser, director of the watchdog group the Revolving Door Project, explaining that for investors, a chance to understand a central banker’s thinking in real life is a valuable source of financial intelligence.
“There are few better sources of information on the planet than a member of the Federal Open Market Committee,” he added. “Their every utterance is treated as potentially market moving.”
The Federal Reserve Board and Citi declined to comment.
The news comes just as an ethics scandal that has dogged the central bank for more than a year appears to be on the verge of bubbling back up.
The Fed’s ethics rules came under scrutiny last year after three central bank officials were found to have made financial transactions during 2020, when the Fed was actively shoring up markets at the onset of the coronavirus pandemic and officials had access to market moving information.
All three resigned early, though some cited unrelated reasons, and the Fed ushered in a sweeping overhaul of its trading rules. But last week, one official — Raphael Bostic, president of the Federal Reserve Bank of Atlanta — disclosed that he had failed to correctly report trading activity in a managed retirement account for several years. His retirement account had several trades on key dates in the market meltdown of 2020, though he said he had no knowledge of the specific trades, since he used an outside money manager.
Norman Eisen, a senior fellow in governance studies at the Brookings Institution and an expert on law, ethics and anti-corruption, said Mr. Bostic’s trades appeared “benign” relative to those of the other officials.
Of Mr. Bullard’s appearances, he said that at first glance, “it’s not an ethics violation, but it’s not a great look.”
The news that Mr. Bullard spoke at a private event attended by bank clients began to draw lawmaker ire on Thursday. The Fed answers to Congress, which can change the act that empowers it. Lawmakers on the Senate Banking Committee and House Financial Services Committee regularly question senior central bankers, including Chair Jerome H. Powell, during testimony on Capitol Hill.
“Fed officials are making a mockery of ethics,” Senator Elizabeth Warren, Democrat from Massachusetts and a frequent central bank critic, said in a statement in response to the news, accusing the central bank of “a culture of corruption.”