Stocktake: Jerome Powell fuss is much ado about nothing

Federal Reserve chief Jerome Powell sold "more than a million dollars of stock as the market was tanking" last October, headlined the left-leaning American Prospect magazine recently.

The story was also picked up by conservative media, with Fox Business Network screaming that Powell “sold up to $5m in 2020 before market tanked”.

The coverage suggests this is very iffy behaviour. “There is no American with more insider knowledge about government policy that drives financial market movements than the chair[man] of the Federal Reserve”, said Prospect, adding that the Dow Jones Industrial Average went on to lose 6 per cent of its value in October.

However, this is a complete non-story. Powell sold a boring Vanguard fund containing more than 4,000 US stocks. Unlike the 30-stock Dow index, Vanguard’s index fell 2.8 per cent in October, not 6 per cent.

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Prospect says Powell’s sale “occurred right before” stocks suffered a “significant drop”. In reality, Powell’s sale occurred on October 1st. Vanguard’s index was higher, not lower, by October 3rd. Stocks then spiked and gained almost 5 per cent by October 12th.

Equities then swooned, although it was only in the last three days of the month that Vanguard’s index fell below Powell’s sale price. Stocks then roared higher again in November and never looked back.

Over the last 12 months there were only four days when stocks traded below Powell’s selling price. Today Vanguard’s index is almost 40 per cent higher than it was when he sold in October 2020.

If Powell is guilty of anything, it is lousy market timing.