Fed Chief and His Munis

Klotz on Bonds

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<h3>James A. Klotz</h3>

James A. Klotz

A peek into the financial holdings of Federal Reserve officials found that Chairman Jerome Powell owns more than $1.5 million in municipal bonds.

The inclusion of bonds in Powell’s portfolio mirrors ordinary investors, who are investing in the municipal bond market at a record pace.

Inflows into municipal bond mutual funds and exchange-traded funds reached more than $79 billion through the end of August, a hefty increase from the $15.73 billion during the same period last year. Those are the largest-ever inflow totals for municipal bonds, Barron’s reported.

As we’ve noted (“Time to Take Advantage of Rising Muni Bond Values?”), munis are in especially high demand.

Many investors are looking for tax-free income in response to expected tax increases. Also, state and local budgets withstood the early part of the pandemic better than many expected. Further, investors, as always, treasure a steady flow of tax-free income, especially during wild swings in the stock market.

Fed chief has munis in his own portfolio

Fed chief one among many

According to public disclosures, Powell owned between $1.25 million and $2.5 million of municipal bonds last year in family trusts. The bonds were purchased before 2019 and still held in 2020.

As part of its moves to shore up the markets during the onset of COVID-19, the Fed bought $6 billion worth of municipal bonds.

Powell’s holdings included bonds from Illinois. A Fed spokesperson said Powell did not participate in the selection of individual municipal bonds or the investments in the family trusts.

The information regarding Powell’s holdings came amid numerous disclosures since earlier this month of Fed bank officials’ trading activity while performing their duties setting U.S. monetary policy.

In response, Powell directed the Fed to review its rules governing the financial activities of its officials.

The Fed chief may be among the most well-known municipal bond holders, but as the massive inflows have demonstrated, he has plenty of company.

James A. Klotz

President

James A. Klotz is the President of FMSbonds, Inc.
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Sep 23, 2021

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