The Financial Times reported today that the Federal Reserve Bank of New York is “aggressively hiring traders” to manage its growing securities portfolio.
The New York Fed implements the Fed’s monetary policy and according to the FT plans to increase the staff in its markets group to 400 by yearend. That is up from 240 at the end of 2007. And no wonder, the Fed has been purchasing fixed income securities at a record pace, doubling its holdings to more than $2 trillion in the last year according to the FT.
That is a lot of buying and a lot of trading. And given the retraction in the hedge fund world, the implosion in the investment banking world and that the transition to electronic trading from pit trading put many locals and specialists out of work; there are a lot of idle traders willing to fill the vacancies.
All this trading raises questions though. How are insider trading rules applied to the ultimate insiders?
There is a huge debate going on in this Country regarding proposed health care reforms as some opponents fear the government taking control of a large portion of the economy and Congress seems determined to penalize speculators (in the form of long-only commodity funds) for what it believes is manipulation of commodities market, particularly energy markets. Where does the Fed controlling a $2 trillion portfolio of securities fit into the mix?
I am not sure. And while I understand that the whole point of Fed interventions in the market is to support policy that has been made public in advance, their recent growth is staggering. It is no longer just coming into the market with matched sales or repurchases to get the Fed Funds rate back in line. The Fed is the ultimate market manipulator—12 years on financial futures trading floors has shown me that, which I guess is okay as long as its role is limited but the Fed’s current role is anything but limited. It failed to spot an oncoming disaster and for that failure it has won the right to fashion the solution.
If you are trader and you can’t beat the Fed, perhaps you should join them.
