The New York Fed Beefs Up Its Trading Desk

Interesting nugget from the FT:

The Federal Reserve Bank of New York is aggressively hiring traders as it seeks to manage its burgeoning securities holdings, making the central bank one of Wall Street’s most active recruiters of financial talent.

The New York Fed – the arm of the US central bank that implements its monetary policy – plans to increase the staff in its markets group to 400 by the end of the year – up from 240 at the end of 2007.

The Fed, which says that most of its new recruits come from private sector financial firms, is hiring employees as many banks, rating agencies, hedge funds and private equity groups shed staff. New York city officials recently estimated that the sector’s woes would lead to a loss of up to 140,000 jobs.

The Fed’s need for more traders is a direct consequence of the central bank’s efforts to keep credit flowing through the US economy. The Fed has been buying fixed-income securities at such a rate that its assets have more than doubled to $2,000bn in the past year, leading the central bank to conclude that it needs more people to monitor the markets and to manage its credit risks.

So, in addition to enacting countercyclical credit policies, it looks like the Fed is getting into the game of countercyclical employment policies, too. (Not that there's anything wrong with that...)

This also kind of hits on the issue I raised yesterday, which is the extent to which a trader should be able to interact with his/her former Wall Street colleagues once they're on the government payroll. It could be an important issue given that a lot of those former colleagues will be on the other side of trades the new Fed staffers make. Now, I suspect the Fed has strict ethical guidelines that govern these interactions. But how do you govern broader conversations among friends which could nonetheless influence the way someone views the value of certain assets or the wisdom of certain trades?