Shelby Eyes Curbs on New York Fed Rather Than Backing Audit Bill

Richard Shelby is more interested in curbing the power of the Federal Reserve Bank of New York than backing a bill to audit U.S. monetary policy.

The Republican chairman of the powerful Senate Banking Committee said he was looking “very strongly” at a proposal from Dallas Fed chief Richard Fisher to strip the New York Fed of its permanent vote on the policy-making Federal Open Market Committee.

Fisher’s plan provides for “more input from the Fed regional presidents, and they’re out there where real life is going on every day,” the Alabama senator said on Tuesday in a Bloomberg Television interview with Peter Cook following Fed Chair Janet Yellen’s semi-annual testimony before the banking panel.

The Fed is under attack from both parties on Capitol Hill. Some lawmakers want more scrutiny of monetary policy, while others demand greater oversight of its financial supervision.

Shelby and another senior Republican on the banking panel signaled that they would oppose a bill to audit monetary policy proposed by Kentucky Senator Rand Paul, a potential contender to be their party’s presidential candidate in 2016.

“We shouldn’t play politics and we shouldn’t make monetary policy, but we should do strong oversight,” said Shelby, who announced on Monday that his committee will hold a March 3 hearing on Fed reform, along with other hearings later next month devoted to regulation of the biggest financial firms.

Paul has re-introduced his bill to eliminate exemptions on Government Accountability Office audits of Fed monetary policy. Twenty-nine Senate Republicans are cosponsors, including Majority Leader Mitch McConnell, along with one Democrat.

Political Meddling

Yellen strongly criticized the audit proposal in her testimony Tuesday, saying it would “politicize monetary policy.” Lawmakers from both parties agreed that it’s not wise to expose the Fed to political meddling.

Republican Senator Bob Corker of Tennessee said at Tuesday’s hearing the audit proposal would allow Congress to directly pressure the central bank on monetary policy. He said it “would not be a particularly good idea” because it might encourage Congress to postpone tough decisions on the budget.

Corker also said he wants more transparency from the Fed on regulatory matters, a theme that has been emphasized by Shelby and other Republicans, who now control both chambers of Congress for the first time in eight years.

Fisher, who retires next month, put forth the New York Fed plan in a Feb. 11 speech. It has generated interest among lawmakers and picked up support from the Independent Community Bankers of America, an industry group that’s already been successful in influencing Fed legislation this year.

New York

Shelby told reporters after the hearing that the New York Fed has had “a super-prominent place” under the Federal Reserve Act which establishes the central bank’s structure. The New York Fed is the only one of 12 regional reserve banks with a permanent FOMC vote, while the others rotate annually.

“And a lot of us ask the question why,” Shelby said. “There’s financial markets in New York, we know that, but other people have a right to serve too, not just somebody from the New York Fed.”

As chairman of the committee in charge of overseeing the Fed, Shelby will play a critical role in crafting any legislation that restructures the central bank.

While no lawmaker has introduced a bill that includes Fisher’s proposal, and Shelby hasn’t introduced any legislation of his own so far, he will be the main force behind anything that does take shape this year.

“We have a number of ideas that have been brought to our attention, some of us on our own, some by our staff, and others by outsiders, including some people who have been on the Fed board,” Shelby said today. He didn’t specify which former officials have been in contact with his office.

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