The Economy

Fed Official Speaks Out Against New Audit Bill

With the GOP now in control of both the House and the Senate, Sen. Rand Paul re-introduced legislation to audit Fed monetary policy.
Matthew HellerFebruary 5, 2015

A U.S. Federal Reserve official has spoken out against Republican efforts to audit the Fed that could gain traction in the new Congress.

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Previous “Audit the Fed” bills have never made it out of the Senate, including one introduced by Rep. Paul Broun. Georgia Republican, last year. But with the GOP now in control of both the House and the Senate, Sen. Rand Paul of Kentucky last month re-introduced legislation to audit Fed monetary policy.

Bloomberg reports that Loretta Mester, president of the Federal Reserve Bank of Cleveland, fired back Wednesday, saying in a speech that such proposals are “really are about allowing political considerations to influence monetary-policy decisions.”

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The Fed is already “subject to many audits of its financial statements and activities,” Mester noted, and Chair Janet Yellen “regularly testifies before Congress on monetary policy.”

Yellen herself has warned that Congressional audits of the Fed would interfere with “the independence of monetary policy” and said in December she would speak out “forcefully against the idea.”

Republicans claim audits are necessary to bring transparency to monetary policy. Paul said last month that the Fed “operates under a cloak of secrecy,” and Americans “have a right to know what the Federal Reserve is doing with our nation’s money supply.”

His new bill would remove limits on the Government Accountability Office’s audits of Fed operations, allowing scrutiny of interest-rate decisions and securities purchases. Similar legislation proposed by Paul passed the House in 2012 but Sen. Harry Reid, Nevada Democrat, blocked it in the Senate amid concerns that exposing the Fed’s communications to public scrutiny would politicize the monetary system.

Allowing political interference in monetary policy “would be a tremendous mistake because it would ultimately lead to poorer economic performance,” Mester said Wednesday. “I strongly believe that the Federal Reserve’s independence in setting monetary policy is worth preserving.”