Fed Pushes Back Against Audit Bill as Threat to Its Independence

The Federal Reserve is stepping up efforts to fend off congressional audits of its monetary-policy decisions, with one official warning they would constitute a threat to its independence.

Proposals to audit the Fed “really are about allowing political considerations to influence monetary-policy decisions,” Loretta Mester, president of the Federal Reserve Bank of Cleveland, said in a speech Wednesday in Columbus, Ohio.

With Republicans in control of both houses of Congress, efforts to rein in the Fed’s monetary-policy and regulatory powers are likely to gain traction. Senator Rand Paul of Kentucky last month re-introduced legislation proposing to audit Fed monetary policy.

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

The Fed banks of Richmond and Philadelphia echoed that message in nearly identical tweets Wednesday: “Did you know the Fed is audited? Regional Feds & the Fed Board undergo regular audits & reviews,” according to the Cleveland Fed tweet.

Yellen said in December she will speak out “forcefully” against the idea. She will appear before Congress later this month in semiannual testimony on monetary policy that is required by law.

Paul’s bill would remove limits on the Government Accountability Office’s audits of Fed operations, allowing scrutiny of interest-rate decisions and securities purchases.

‘Cloak of Secrecy’

Paul, a potential Republican presidential contender, in a statement last month said the 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.”

The Fed has held interest rates near zero since December 2008 and more than quadrupled its balance sheet to $4.5 trillion with three rounds of bond purchases.

Allowing political interference in monetary policy “would be a tremendous mistake because it would ultimately lead to poorer economic performance,” Mester, 56, said in her speech Wednesday. “I strongly believe that the Federal Reserve’s independence in setting monetary policy is worth preserving.”

Mester told reporters she has met with members of Congress “a couple of times” in her first six months as president of the Cleveland Fed, one of 12 regional Fed banks.

“In those discussions certainly I will be talking about why its important to preserve Fed independence in making monetary-policy decisions,” she said.

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