Chair Janet Yellen strongly criticized a proposal to allow congressional audits of the Federal Reserve’s monetary policy and lawmakers from both parties agreed that it was a bad idea to expose the Fed to political meddling.
“Audit the Fed is a bill that would politicize monetary policy, would bring short-term political pressures to bear on the Fed,” Yellen said Tuesday during testimony to the Senate Banking Committee. She said such a law isn’t needed because the Fed already is “extensively audited.”
Republicans who now control both chambers of Congress for the first time in eight years have proposed bills to put the Fed under more scrutiny.
Republican Senator Rand Paul of Kentucky has re-introduced legislation to eliminate exemptions on Government Accountability Office audits of Fed monetary policy. Twenty-nine Republican senators are cosponsors, including Majority Leader Mitch McConnell, along with one Democrat.
“Central bank independence in conducting monetary policy is considered a best practice around the world,” Yellen said Tuesday.“Beyond a shadow of a doubt, independent central banks perform better.”
Yellen got support during the hearing from Democratic lawmakers and from Senator Bob Corker, a high-ranking Republican from Tennessee.
“I can’t imagine any American wanting Congress involved in monetary policy decisions, and I strongly oppose that,” Corker said in an interview on the sidelines of the hearing. “I do think there should be more transparency” in the Fed’s regulatory actions, he said, “so we likely will work towards legislation to deal with that.”
Yellen also said the Fed’s decentralized structure, with a Washington-based Board of Governors and 12 regional reserve bank presidents, has served it well.
“I think the current structure works well so I wouldn’t recommend changes,” she said.
Dallas Fed President Richard Fisher, who retires next month, has proposed stripping the New York Fed of its permanent vote on the policy-making Federal Open Market Committee.
Fisher’s proposal, which he said was meant to address concerns that too much power is concentrated at the New York Fed, last week won the backing of the 6,500-member Independent Community Bankers of America, an influential Washington lobby.