© Reuters. FILE PHOTO: The U.S. Federal Reserve building is pictured in Washington, March 18, 2008. REUTERS/Jason Reed/File Photo
By Michael S. Derby
(Reuters) – Two years after the presidents of the Dallas and Boston Federal Reserve banks left their jobs amid revelations they had traded on financial markets while helping to set monetary policy, an internal watchdog has yet to finish a probe into a scandal that has clouded the U.S. central bank’s reputation.
That’s left some lawmakers in the U.S. Congress, as well as outside experts, incredulous over the state of an inquiry they argue should have been wrapped up long ago. But there has been progress: While several legislative efforts to overhaul central bank ethics and increase transparency have made little headway, the Fed sharply clamped down on how and when its officials, top staff and family members can invest.
On Oct. 4, 2021, Fed Chair Jerome Powell asked the central bank’s Inspector General (IG) to look into the controversy that erupted after it was disclosed that Boston Fed President Eric Rosengren had traded real-estate securities and Dallas Fed President Robert Kaplan had traded millions of dollars of individual stocks in 2020, even as the Fed undertook a rescue of the U.S. economy and financial markets with massive purchases of Treasuries and housing-backed bonds.
That probe later expanded as other concerns about officials’ financial activities emerged, but exactly two years later, IG Mark Bialek has not yet submitted a final report.
“The Fed’s watchdog has failed” at every stage of its investigation so far, Democratic Senator Elizabeth Warren said in an interview. Republican Senator Rick Scott said the lack of resolution “is unfortunately another example of how the Fed has not, and will not, hold anyone accountable for their actions.”
Peter Conti-Brown, a professor at the Wharton School of the University of Pennsylvania, said “the IG has just flubbed this, and that invites all kinds of theorizing, most of which will not be drawn in the Fed’s favor.” He added that “there’s a good reason why we have not gotten a more thorough report about the Reserve Bank presidents’ activities around these trades, or there isn’t. If there’s a good reason, we should know what it is.”
Bialek’s office declined to comment about the state of the investigation.
UP IN THE AIR
The IG cleared Powell just over a year ago of what the central bank chief had said were accidental trades that happened too close to monetary policy meetings. It also cleared Richard Clarida, the Fed’s former vice chair, over how he reported his own trades.
But at the regional level, the IG has yet to weigh in on the trading activities of Rosengren, Kaplan and current Atlanta Fed President Raphael Bostic. Rosengren left the Boston Fed in late September of 2021 and Kaplan followed about a week later.
Both Rosengren and Kaplan have said they followed the Fed rules that governed trading at the time, and their disclosures were approved by Fed lawyers. Neither responded to questions from Reuters about their interactions with the IG probe.
Bostic acknowledged last year that he had inadvertently made financial trades during forbidden periods and noted more such issues in June of 2023.
The Atlanta Fed said the IG “has been in contact with President Bostic since the investigation was initiated, but since it is ongoing, we don’t have any additional comment.”
The most concrete response to the controversy to date has come from the Fed itself. It tightened rules in early 2022 around officials’ investing, sharply limited what financial assets policymakers, top staff and their families could own and clamped down on when they could make transactions. The Fed also said earlier this year that it would implement recommendations from the IG to ensure compliance with the new system.
Conti-Brown praised the central bank’s new ethics regime as likely the best in government, which he said casts the IG’s work in an even worse light. “The Fed has it within itself to be serious about these issues. And I don’t know why the IG is not handling this in a more serious way.”
Warren and Scott see Bialek, who has been in his job since 2011, as a compromised watchdog because the IG is appointed by the Fed chief, a built-in conflict of interest in their view.
They have proposed legislation that would make the Fed IG position a presidential appointment requiring confirmation by the Senate, something Bialek has publicly opposed.
During a hearing in the Senate in May, Bialek said the Fed had never interfered in his work. He also pushed back on legislators’ assertions that his investigation of Powell and Clarida had been superficial.
He noted that the ongoing probe into the trading activities of Rosengren and Kaplan limited what he could say about his methods, promising that a fuller accounting of how his office has investigated the matter would be forthcoming once the process was complete.
Warren said she’s still holding out hope the IG overhaul bill she proposed with Scott will move forward. Since its introduction last spring, however, it has attracted only half a dozen other co-sponsors and has not been acted upon by the Senate Banking Committee to which it was assigned and where Warren is a member.
“There’s been a long tradition in the Senate of hands off on the Fed. That’s how a culture of corruption first takes root and starts to grow,” Warren said. “Now that we’ve seen that certain lapses have made it into the public view, we’ll make significant changes so that those kinds of mistakes never happen again.”
U.S. stocks soar after better than expected inflation stokes rate hopes
Investing.com — U.S. stocks surged on Tuesday after data showed that inflation cooled more than expected in October, offering support to the view that the Federal Reserve may be closing to ending its rate-hiking cycle.
By 10:55 ET (15:55 GMT), the was up 505 points or 1.5%, while the was up 2% and the was up 2.3%.
The main indices on Wall Street closed mixed on Monday in subdued trading at the start of a new week. The 30-stock Dow added 0.2%, while the benchmark S&P dipped by 0.1% and the tech-heavy Nasdaq shed 0.2%.
U.S. CPI cools more than expected
These gains followed the release of data showing headline inflation in the U.S. slowed by more than expected in October, in a boost for Federal Reserve officials keen on corralling price pressures in the world’s largest economy.
The U.S. rose by 3.2% in October on an annualized basis, decelerating from a rate of 3.7% in September. It was the reading’s first decline in three months. Month-on-month, the measure came in flat, down from a gain of 0.4% in September.
Economists had forecast a 3.3% annual gain and a 0.1% gain from the prior month.
Fed Chair indicated last week that further interest rate hikes were still possible as the central bank attempts to bring inflation back down to its 2% target, but the market still widely expects the Fed to stand pat at the year’s last meeting as inflationary pressures show signs of cooling. This result has prompted investors to speculate that the Fed’s next move may be a cut next year.
Home Depot reports drop in 3Q sales
On the corporate side of the equation, big-box retailers are stepping up with earnings reports.
Home Depot (NYSE:) reported a smaller-than-anticipated 3.1% decline in third-quarter comparable sales as customers undertook more modest projects and home repairs. The retailer also indicated caution about the coming months, as it narrowed its full-year outlook, now expecting sales to fall by 3% to 4% from the prior year, compared with a previous expectation of a 2% to 5% decline. Shares rose 6.3%.
Target (NYSE:) follows with its earnings on Wednesday, while Walmart (NYSE:) and Macy’s (NYSE:) are scheduled to release their results on Thursday.
Electric vehicle maker Fisker Inc (NYSE:) reported disappointing earnings and said it would delay its quarterly regulatory filing. Shares were down 23%.
Oil helped by IEA lifting demand growth forecasts
Oil prices edged higher Tuesday after the International Energy Agency raised its oil demand growth forecasts for this year and next despite economic risks ahead.
The IEA, in its , lifted its 2023 growth forecast to 2.4 million barrels per day from 2.3 million, and 930,000 barrels per day from 880,000 in 2024.
The agency, however, was careful to point to an expected deceleration in economic growth in nearly all major economies next year, but said its expectations were underpinned by hopes of interest rate cuts and the recent fall in crude prices.
The Organization of the Petroleum Exporting Countries had also slightly raised its 2023 forecast for growth in global oil demand, in its , released on Monday.
(Peter Nurse and Oliver Gray contributed to this item.)
Lloyd’s of London SPAC venture scrapped due to volatile markets
© Reuters. FILE PHOTO: A view shows the Lutine Bell during an event to mark accession of Britain’s King Charles at the Lloyd’s Building in the City of London, Britain, September 15, 2022. REUTERS/Sarah Meyssonnier/File Photo
By Huw Jones
LONDON (Reuters) – Financials Acquisition Corp said on Monday it would enter liquidation as it scraps a planned merger with its newly formed insurance venture, citing “insufficient” cash commitments due to volatile capital markets.
The special purpose acquisition company (SPAC) had unveiled plans to combine with London Innovation Underwriters (LIU) and raise additional funds to deploy in the Lloyd’s of London insurance market.
A shareholder meeting planned for Nov. 14 to approve the tie-up plans and seek up to 300 million pounds has been cancelled, the company said.
The SPAC has an end of year deadline to use funds raised for a takeover, and said it would not seek an extension.
“Consequently, the Company proposes to cease operations, other than for the purpose of returning funds to Shareholders and conducting an orderly winding up of the Company,” Financials Acquisition Corp said in a statement.
“In order to ensure due payment of creditors, the Company proposes to appoint a liquidator as soon as practicable to administer the winding up of operations, and expects to release a further announcement regarding this process in due course.”
LIU said despite interest from a wide range of investors, the level of demand was insufficient to reach the minimum cash threshold required.
LIU said it would consider exploring alternative options to pursue its strategy of accessing the Lloyd’s of London insurance market.
The failed effort comes amid a dearth of new listings in London and concerns over its appeal as a capital markets hub, despite profits at Lloyds (LON:) of London which are booming thanks to rising prices for insuring commercial risks.
Following a frenzy of deals in the early days of the COVID-19 pandemic, SPACs have lost popularity as they struggleto find businesses to merge with. Others have seen lacklustre stock performance after acquiring a target.
Medical device stocks rise in relief after Wegovy heart benefits data
© Reuters. FILE PHOTO: A 0.25 mg injection pen of Novo Nordisk’s weight-loss drug Wegovy is shown in this photo illustration in Oslo, Norway, September 1, 2023. REUTERS/Victoria Klesty/Illustration/File Photo
(Reuters) -Shares of U.S. medical device makers rose on Monday as a potential hit from the cardiac benefits of Novo Nordisk (NYSE:)’s weight-loss drug Wegovy was seen as more moderate for the battered sector than initially feared by investors.
To be sure, the full results presented on Saturday at a major medical meeting gave analysts even more confidence in the heart protective benefits of the hugely popular drug.
“We believe key findings could be seen as a marginal positive for some, but not all, verticals within MedTech, especially given currently depressed sentiment,” said Baird analyst Jeff Johnson.
The data, for instance, showed the reduction in risk of non-fatal stroke was not statistically significant over the length of the trial.
That lifted shares of Penumbra (NYSE:), which makes devices used in surgeries for stroke patients, 13% in morning trading.
Its shares have tumbled about 28% as of last close since Novo in August said Wegovy had also shown a clear cardiovascular benefit.
The $4.64 billion iShares US Medical Devices ETF rose 2.3% on Monday, eyeing its biggest one-day percentage gain since April. The ETF is down about 13% this year, through Friday’s close.
Shares of diabetes care device makers Abbott Laboratories (NYSE:), Dexcom (NASDAQ:), Insulet (NASDAQ:), Tandem and Medtronic (NYSE:) gained between 2% and 8%.
Monday’s moves are the latest sign that investors across industries are closely looking at developments with the popular new class of weight-loss and diabetes drugs called GLP-1s such as Wegovy and Eli Lilly (NYSE:)’s Mounjaro and Zepbound.
“The full detailed results … do not shift our outlook that MedTech device stocks appear broadly oversold,” said Leerink analyst Mike Kratky.
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