There are now colliding narratives in the ongoing Federal Reserve trading scandal.

One has the Fed instituting tough new rules on how and when – if at all – senior officials may trade securities:

The Fed…said the new rules will restrict senior officials’ trading to broad-based investment vehicles such as mutual funds. They also will require any trades to be preapproved and pre-scheduled, removing the potential for any appearance that officials were benefiting from inside information to bolster their personal investments.

The rules will apply to the system’s 12 reserve bank presidents and the seven governors on the central bank’s Washington-based board, as well as an unspecified number of senior staff who are heavily involved in preparing for meetings of the rate-setting committee.

That’s good – and should help avoid the jaw-dropping disclosures of million-dollar trades regional bank presidents made while helping set interest rate policy.

But then there’s this emerging story out of the Fed’s ethics office that everyone had been warned not to make such trades:

On March 23 last year, as the Federal Reserve was taking extraordinary steps to shore up financial markets at the onset of the pandemic, the central bank’s ethics office in Washington sent out a warning.

Officials might want to avoid unnecessary trading for a few months as the Fed dived deeper into markets, the Board of Governors’ ethics unit suggested in an email, a message that was passed along to regional bank presidents by their own ethics officers.

The guidance came just as the Fed was unveiling a sweeping rescue package aimed at backstopping or rescuing markets, including those for corporate bonds and midsize-business debt. It appears to have been heeded: Most regional presidents and governors of the Fed did not engage in active trading in April, based on their disclosures.

But as we all know, Fed officials were back in the markets soon enough. And that remains a major problem:

…because it shows that central bank ethics officers — and officials in general — were aware that active trading could look bad when the Fed was taking emergency action to try to save markets and its policymakers had vast access to sensitive information. Despite the early warning, some top officials resumed trading after the most proactive phase of the Fed’s rescue ended, based on financial disclosures and background comments from regional bank spokespeople.

The Fed’s inspector general is conducting an investigation of the matter. In the meantime, there’s a possibility this story ends the career of Fed Chairman Jerome Powell. Congressional progressives have long wanted Powell out. The trading scandal may be enough for them to kick Powell to the curb.