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Michelle Bowman, the Federal Reserve's top banking regulator, spoke at an invitation-only Bank of America client dinner during the central bank's communications blackout period, a gathering ethics experts say may have violated Fed rules against preferential access.
Federal Reserve Vice Chair Michelle Bowman attended a private Bank of America dinner for clients during the central bank's communications blackout period, raising questions about whether the appearance violated Fed ethics rules governing exclusive access.
"The rules are not ambiguous here," said Patrick Harker, former president of the Federal Reserve Bank of Philadelphia. "It doesn't matter if you talk about monetary policy or not during that dinner, you just don't do it."
The dinner took place Wednesday evening in New York, hours after the Federal Open Market Committee held rates at 3.5 percent to 3.75 percent in Kevin Warsh's first meeting as chair. The Fed's quiet period, which bars officials from commenting publicly on monetary policy in the days around a decision, ran through the end of Thursday. More than 20 hedge fund executives and Wall Street clients attended the event organized by Hayley Boesky, Bank of America's executive vice chair for public policy and client engagement and a former New York Fed staffer, according to three people familiar with the matter.
The episode threatens to undermine trust in the Fed's independence at a moment when Warsh is overhauling the central bank's communication strategy. Two private-sector invitees declined to attend over compliance concerns, according to people familiar with the matter, and ethics experts said the exclusive access to a regulator who oversees the host bank created the appearance of favoritism.
Bowman said in a statement that she did not share her views on monetary policy at the dinner. "I have consistently complied with all applicable FOMC and ethics rules and remain firmly committed to doing so," she said. When Boesky introduced Bowman, she noted that the blackout rules barred her from discussing monetary policy, one attendee said. Two Fed staff members who accompanied Bowman also reminded attendees of the restriction, and Bowman's remarks focused on bank regulation.
Still, the Fed's communication policy, adopted by the FOMC in 2011 and reaffirmed as recently as January, instructs officials to avoid sharing personal policy views with anyone who could profit financially unless those views are already public. It also says officials should not give any profit-making firm "a prestige advantage over its competitors." The policy identifies a private meeting with selected clients of a for-profit firm to discuss monetary policy as the kind of contact that would not be consistent with its principles.
Richard Painter, who served as the White House's top ethics lawyer under President George W. Bush, said attending the dinner would not have been permitted under the standards his office enforced. Federal gift rules allow officials to attend events sponsored by trade groups such as the American Bankers Association but not by a single company, he said. Separate ethics rules bar the appearance that a federal official is endorsing a specific firm.
"It's absolutely critical that the Fed not be perceived as favoring one bank over another," Painter said. "This is like a referee in a game going on the field wearing one of the team's jerseys. It doesn't give the appearance of fair play."
Harker, who led the Philadelphia Fed for a decade before retiring last year, said ethics officials at his bank would not have allowed his participation at such an event. "No closed-door meetings, for sure. No way," he said. "If Bank of America is putting their dinner on, it's giving them a commercial advantage, right? So we were not allowed to do those."
At the dinner, Bowman discussed regulatory policy and expressed skepticism about the Fed's standing repo facility, a lending tool meant to improve the central bank's control over short-term money markets, according to a person familiar with the discussion. She has previously said the facility should charge a higher rate to discourage routine borrowing, a view that some current and former Fed officials worried would deepen the stigma around the tool.
Bowman also agreed with an attendee who described Warsh's debut press conference as refreshing and suggested that the task forces he announced would draw heavily from outside experts, the person said. Warsh, who took the helm at the June 16-17 meeting, has vowed to revamp how the Fed communicates with investors and the public, including a task force to review the central bank's messaging approach.
The dinner came at a pivotal moment for the Fed. Nine of the 19 officials who participate in FOMC meetings signaled they could support an interest rate increase by year-end, a sharp reversal from March when none did. Warsh shared far less forward guidance than his predecessors, saying he wanted to move away from projecting the path of rates.
Bowman, a Republican appointed to the Fed board by Trump in 2018 and elevated to the top banking regulator post last year, has pushed to ease the regulatory regime built after the 2008-09 financial crisis. She has cut the supervision division's staff substantially and pressed examiners to focus less on procedural issues — an agenda welcomed by the banks she oversees.
The Fed's policy does not specify how potential violations of the communication rules would be handled, leaving unclear whether Bowman's appearance will trigger any formal review.
This article is for informational purposes only and does not constitute investment advice.
