Dallas Fed President Kaplan to retire in wake of trading criticism

The Fed's Robert Kaplan will resign from his position as Dallas President early in October, after scrutiny of trading. Yahoo Finance's Brian Cheung shares the details.

Video transcript

- Well, something else to watch out for is the ongoing shakeup at the Federal Reserve, which clearly isn't done. And it could have major implications on Fed policy this year and in 2022. Yahoo Finance Fed correspondent Brian Cheung is here with the latest. Brian?

BRIAN CHEUNG: Well, we need to recap what happened yesterday, which could go down in history in the Federal Reserve books. Perhaps, as one of the biggest shakeups that we've seen in the central bank's history.

Two of the 12 Reserve Bank presidents saying that they will be retiring and the announcement that we got after the bell yesterday, was that the Dallas Fed president Robert Kaplan, would be stepping down as the head of that Reserve Bank effective October 8th.

I want to read you a quote from what he said in a statement that was announcing alongside that retirement statement from the Dallas Fed. Quote, "The Federal Reserve is approaching a critical point in our economic recovery as it deliberates the future path of monetary policy. Unfortunately, the recent focus on my financial disclosure risks becoming a distraction to the Federal Reserve's execution of that vital work."

Again, that coming from Rob Kaplan. If you'll recall, it was this particular Fed president who was cast into light by a Wall Street Journal report detailing a number of multi-million dollar stock transactions done over the course of 2020. A big deal for a policymaker that had such a heavy hand over engineering the monetary policy response from the Fed through the depths of the crisis last year.

Again, he'll be stepping down October 8, even though his term as the Dallas Fed president was supposed to extend through 2025. In his place, the first vice president, Meredith Black, will be taking his place on an interim basis while the Dallas Fed tries to figure out a replacement.

And, as you'll recall, as we spoke about earlier on the show yesterday, this comes after the Boston Fed President Eric Rosengren said he'd be pulling forward his retirement by about nine months to leave effective this week, citing a kidney issue that apparently worsened during the pandemic.

So Rosengren and Kaplan both out. There will be two new characters put into these positions, again, pending the boards of each respective Reserve Bank which we might not know for a few months. But a big shakeup at the Fed happening yesterday, guys.

- And this is the backdrop under which we are going to hear from Jay Powell. Today he'll be testifying before the Senate-- a Senate subcommittee I should say, as well as US Treasury Secretary, Janet Yellen. And, man, I imagine there are going to be some questions about this. I imagine there's going to be a lot of talk about inflation.

And I would imagine also, because they are members of Congress, they're going to take the opportunity to grandstand a little bit as to what is going on in Washington right now, in terms of the government shutdown, potentially, and the debt ceiling.

And on that latter point, Janet Yellen, I'm assuming-- but we'll verify this, that this is a release from her prepared testimony that she'll be giving today. Oh, she sent a letter to Congress on the debt limit, excuse me. She sent a letter to Congress on the debt limit. And she says the US is likely to hit the debt ceiling, Brian, by October 18. So there's going to be a lot for them to talk about today.

BRIAN CHEUNG: Yeah, absolutely. We'll see how quickly they can wrap up that hearing today, which kicks off at 10:00 AM. But of course, this is not necessarily congressional testimony that's related to the stock trading issues over at the Fed.

This was something that was prescheduled. This is something that they've been doing periodically since the CARES Act was passed, that $2.3 trillion bill last year, to bring the heads of the Treasury and the Federal Reserve up to Congress. So they'll be appearing side by side, Treasury Secretary Janet Yellen alongside Fed Chairman Jerome Powell.

Yellen really plans on hitting that debt limit issue. As you mentioned, in addition to just sending that letter, her prepared testimony made it very clear that she felt it was imperative-- was the word that she used-- that Congress raised the debt ceiling to make sure that the United States doesn't default on the debt. Whereas, Jerome Powell was talking about inflation-- said that inflation is elevated, but said, quote, "that will likely remain so in coming months." Although, they're still sticking to their guns on the transitory view of things.

Now with regards to whether or not he will face any questions about inflation or monetary policy, again, could be disrupted by the fact that there's just so much intrigue into the ethics issues that I just detailed with the Dallas and the Boston Fed presidents.

But we have to remember the overall kind of specter that's happening right here, which is going to be in the Senate Banking Committee. A lot of these people are going to be the same people that he might have to face if he is renominated as the Federal Reserve chairman by the White House. Now, again, no official announcement yet. We don't know if they'll even pick him. Maybe they'll pick another candidate like, uh, Lael Brainard, who's currently a Fed governor.

But for what it's worth, an interesting note that I got from Evercore ISI yesterday, noting that the departure of Rosengren and Kaplan quote "should ease pressure on Powell, who notably failed to express confidence in the two presidents at last week's press conference." He said that may indeed may have been part of the reason that Rosengren and Kaplan agreed to step down. This coming from Evercore ISI's Krishna Guha.

So very interesting to see how all these pieces are, kind of, coming together. Maybe this is part of Powell's efforts to try to get himself renominated. But again, as I asked him in the press conference, he had no comment with regards to whether or not he wants that role. But of course, all the politics definitely coming into play as that hearing kicks off in about 50 minutes or so.

- Well, Brian, you tried. You have to ask, right?

BRIAN CHEUNG: I tried. I tried.

- Brian Cheung, busy day for you. We'll check back with you later.