Risk & Compliance

House Passes ‘Audit The Fed’ Bill

The White House has threatened a veto of the FORM Act, saying it would compromise the Federal Reserve's independence.
Katie Kuehner-HebertNovember 20, 2015

Over the threat of a White House veto, the House has approved a bill that would tie the U.S. Federal Reserve’s monetary policy to a mathematical rule.

The so-called FORM (Fed Oversight Reform and Modernization) Act would also subject the central bank to a one-time audit by the Government Accountability Office. It passed Thursday on a largely party-line vote of 241-185.

“By passing the FORM Act, the House has taken a strong step forward in restoring accountability and transparency at the Federal Reserve,” the measure’s author, Rep. Bill Huizenga (R-Mich.), said in a news release.

“The FORM Act provides the Fed with the flexibility necessary to conduct monetary policy but holds the Fed accountable by requiring it to communicate its policy to Congress and the American people,” added.

Under the policy rule envisioned by lawmakers, the Fed would commit to moving interest rates up or down depending on economic indicators like the jobless rate and inflation.

Both the White House and the Fed oppose the measure, claiming it would politicize the Fed’s decision-making process, according to The Hill.

“The Federal Reserve is an independent entity designed to be free from political pressures, and its independence is key to its credibility and its ability to act in the long-term interest of the nation’s economic health,” the Obama administration wrote in its veto threat against the bill.

In a letter to Congress this week, Fed Chair Janet Yellen warned that audits would hinder the central bank’s policymaking deliberations.

“The bill would severely impair the Federal Reserve’s ability to carry out its congressional mandate and would be a grave mistake, detrimental to the economy and the American people,” she wrote.

The House first tried to force Fed audits in 2012, with a bill authored by then-Rep. Ron Paul. Eighty-nine Democrats at that time joined with Republicans in support of Paul’s bill.

“Economic history shows that when the Fed employs a more predictable method or rules-based monetary policy, more positive economic outcomes result,” Rep. Jeb Hensarling (R-Texas) wrote Thursday in The Wall Street Journal.

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