Senator Bernard Sanders dropped a proposal to audit the Federal Reserve’s monetary policy that the central bank had said posed a threat to its independence.
The Vermont independent narrowed the scope of an amendment to financial-overhaul legislation to “a one-time audit of all loans and other financial assistance” starting in December 2007. He also included a review of how regional Fed bank directors are appointed.
Senate Banking Committee Chairman Christopher Dodd threw his support behind the revised legislation after opposing previous versions that called for broader audits of the Fed’s decisions. Senators are debating the most sweeping overhaul of financial regulation since the Great Depression.
“There was a concern about whether or not the independence of the Fed in any way would be compromised, and he has guaranteed with his language here that that is no longer an issue whatsoever,” Dodd, a Connecticut Democrat, said from the Senate floor today. Republicans Charles Grassley of Iowa and Sam Brownback of Kansas also voiced support.
Federal Reserve Chairman Ben S. Bernanke opposed earlier versions of the Sanders amendment, saying in a letter released today that it could “seriously threaten” monetary policy independence, fuel concerns about inflation and damage economic stability and job creation.
Sanders pushed back against critics in his remarks on the Senate floor.
“This does not tell the Fed when to cut short term interest rates and when to raise them,” Sanders said. “What the opponents of this amendment are doing is equating independence with secrecy, and there is a difference.”
Deputy Treasury Secretary Neal Wolin welcomed the revised measure, saying it preserves central bank independence while throwing its operations open to greater public scrutiny.
“We appreciate the work of Senator Sanders and Senator Dodd to work together on a strong amendment that ensures full and open transparency regarding emergency lending programs, without compromising the Federal Reserve’s full independence with respect to the conduct of monetary policy,” Wolin said in a statement.