By Pam Martens and Russ Martens: February 6, 2024 ~

The Fed’s longstanding relationship with reporters who are allowed to attend the Fed Chair’s press conferences is akin to a master class in Stockholm Syndrome. Your survival in this room depends on your subservience to intellectual capture by the woman who runs this room with the precision of a heat-seeking missile.

A growing number of Fed watchers believe that it is Michelle Smith, the Director of Communications at the Fed for the past 23 years, who is quietly cracking the whip. Smith is now such a critical part of policing every word spoken to the public by or about the Fed that she appeared walking beside Fed Chair Powell in one of his rare interviews on 60 Minutes this past Sunday.

Consider the following cases of disappeared reporters from the Fed’s press conferences.

On September 7, 2021, reporter Michael Derby of the Wall Street Journal (paywall) broke the story about then Dallas Fed President Robert Kaplan making million dollar plus stock trades while sitting on inside information from the Fed in 2020, a year of unprecedented market interventions at the Fed as a result of the economic dislocations from the COVID pandemic.

At the next Fed press conference with Fed Chair Jerome Powell on September 22, Derby had the following exchange with Powell:

DERBY: Thank you for taking my question. You noted earlier in the press conference that you weren’t aware of the trading activity of the Boston and Dallas Fed Bank presidents. As you know, those, all 12 regional Fed Bank presidents, just went through the renomination process earlier this year. And Governor Brainard described it as a rigorous process at the time. So I want to know, did anybody know—did anybody at the Board level know about the stock trading activity? And, going forward, do you still have confidence in the Dallas and Boston Fed Bank presidents to do their job?

POWELL: So these, I don’t need to tell you, we file, people file these reports annually. And I think they were just quite recently filed for 2020. So I don’t have any reason to think people at the Board would have known about particular trading that’s going on. They will see that—there are people at the Fed who see the, you know, see the trading reports when they’re, you know, when they’re annually filed. You know, in terms of having confidence and that sort of thing, I think no one is happy, no one on the FOMC is happy to be in this situation, to be having these questions raised. It’s something we take very, very seriously. This is an important moment for the Fed, and I’m determined that we will rise to the moment and handle it in ways that will stand up over time. I’m very reluctant to get ahead of the process and speculate, though, about different things. And, you know, when we have things to announce, we’ll go ahead and do that, but that’s really what I have for today.

DERBY: One small follow-up. I mean, I know that you didn’t have the 2020 forms in hand, but you would have had past-year forms in hand. And at least in the case of, like, the Dallas disclosure forms, similar trading activity was shown in years past. So that, in theory, could have been something that came up in the renomination process.

Powell talked in circles around Derby’s last question.

Derby’s questions were tame compared to our take on the matter. (See Robert Kaplan Was Trading Like a Hedge Fund Kingpin for Five Years while President of the Dallas Fed; a Dozen Legal Safeguards Failed to Stop Him.)

Nonetheless, by the December 15, 2021 Fed press conference, Michelle Smith took questions from 12 different reporters – many from much smaller news outlets – before she called on Derby. By the March 16, 2022 Fed press conference, Derby had either completely disappeared from the room or was simply not being called on for questions. That is, his name does not appear in the official transcript of the press conference as do the other reporters who were called on.

At the time Derby broke the Fed trading scandal in September of 2021 (which went on to taint multiple Fed officials), he had worked at the Wall Street Journal for 21 years. One year after he broke that story and asked probing questions at the Fed’s press conference, Derby no longer had a job at the Journal. He had moved on to Reuters. Despite still covering the Federal Reserve for Reuters, Derby’s name no longer appears on the transcript of Fed press conferences, indicating he is either not in the room or is not being called on for questions.

Then there is the case of Craig Torres, Federal Reserve and Economic reporter for Bloomberg News. At the January 26, 2022 Powell press conference, Torres waded deeper into the treacherous trading scandal waters. The exchange went as follows:

TORRES: Chair Powell, I have a quick administrative question. You know, Robert Kaplan’s disclosure of his securities transactions: In a couple of months, Chair Powell, or maybe sooner, you and I will file our tax returns. And we’ll list transactions and all kinds of things. And next to those transactions we’ll put dates. And Bloomberg asked for the dates of Mr. Kaplan’s transactions. The Dallas Fed is not giving us the dates. And I don’t see why this is a matter for the Inspector General or anybody else. I mean, why can’t he give us the dates? Will you help us get the dates of those transactions? Thanks.

POWELL: I know you’ve been all over this issue with my colleagues, Craig, on the issue of information. We don’t have that information at the Board. And, you know, I had — I asked the Inspector General to do an investigation, and that is out of my hands. I’m playing no role in it. I seek to play no role in it. And I don’t — I really — I can’t help you here today on this issue. And I’m sorry I can’t.

Torres was explaining to Powell that there is no reason for the dates of Kaplan’s trades to be withheld from the public because of any ongoing investigation because that information, per the Fed’s disclosure rules, was previously legally owed to the American people and Kaplan didn’t provide it as legally required. When Kaplan made his multiple “over $1 million” trades in bets on which way the stock market would move using S&P 500 futures – during the year of 2020 when he was both sitting as a voting member of the Fed’s FOMC as well as making market-moving comments himself to the media – he was legally obligated to report the dates of each individual buy and sell on the form provided to him by the Dallas Fed. Every other regional Fed Bank President listed the dates of the buys and sells. But Kaplan simply wrote the word “multiple” where the date was required. (See Kaplan’s financial disclosure forms from 2015 through 2020 here.)

By eliminating the dates from his financial disclosure forms, it was impossible to see if Kaplan was trading during Fed blackout periods and if he was shorting the market and then the dates when he covered his shorts.

Kaplan is a sophisticated investor who spent 22 years at Goldman Sachs, rising to the rank of Vice Chairman. He clearly knew, for five solid years, that he was not providing the dates of his trades as required by the mandated financial disclosure form. On January 18 of this year, the Fed’s Inspector General cleared Kaplan as follows: “we did not find that his trading activities violated laws, rules, regulations, or policies related to trading activities as investigated by our office.”

Kaplan has been making appearances on Fox Business news, giving advice on what the Fed should be doing, while Torres seems to have disappeared from the Fed press conferences. Torres is still writing about the Fed for Bloomberg News but we have not seen his name in a Fed press conference transcript since September of last year.

There was also the 2015 case of the Wall Street Journal reporter, Pedro da Costa, asking Fed Chair Janet Yellen an uncomfortable question about Fed leaks of confidential information and finding himself without a job.

Intimidating the press to toe the line on asking acceptable questions and writing acceptable articles is not compatible with a free society. See our reports: There’s a News Blackout on the Fed’s Naming of the Banks that Got Its Emergency Repo Loans; Some Journalists Appear to Be Under Gag Orders; and Mainstream Media Has Morphed from Battling the Fed in Court in 2008 to Groveling at its Feet Today.

A Gallup poll released in May of last year found that just 36 percent of those Americans surveyed said they had either a “great deal” or a “fair amount” of confidence in Fed Chair Powell. Clearly, Michelle Smith’s endeavors to colonize the minds of a free press are not working out as planned.