The chairman of the Federal Reserve Board (FRB) is required by law to appear before Congress two times each year. I suspect that this is not one of the most appealing parts of being FRB chairman. The FRB, through the Federal Open Market Committee (FOMC), sets the economic policy of the United States and, arguably, of the world. There is an historic tug-of war-between the FRB and Congress as to how much information about FOMC decisions should be made public, and when.
In today’s age of transparency, efforts to “audit the Fed” have become a cornerstone for some factions in Congress. Sen. Rand Paul of Kentucky is using this as a plank in his efforts to win the Republican nomination for president. His father, former Congressman Ron Paul, mounted campaigns for president using this same cry for transparency at the Fed. Currently there is some support being rallied for “audit the Fed” among more moderate Congressmen.
Last week was one of those required appearances before Congress for FRB Chairman Janet Yellen. Her appearances were before the Senate Banking, Housing & Urban Affairs Committee on Tuesday and before the House Financial Services Committee on Wednesday. Chairman Yellen, by all accounts that I have seen, acquitted herself well, but left many House Financial Services Committee members frustrated. Yet she was well prepared to answer the plethora of questions from both sides of the aisle. When asked about the “audit the Fed” issue, she indicated that she would prefer not to have it implemented and questioned if Chairman Paul Volcker would have been able to effectively fight the elevated inflation that he faced during his time if he had been subjected to “audit the Fed” during the 1970s and 1980s. Sen. Bob Corker of Tennessee, who opposes the “audit the Fed” effort, asked if the financial statements of the Fed were being audited by anyone. Chairman Yellen assured him that the firm of Deloitte did indeed perform an audit of the Fed. That response brilliantly drew the parallel that the Fed is audited financially, as are all financial corporations. Many people swayed by “audit the Fed” proponents have no idea what it would actually do, and are mistakenly convinced that the Fed is not financially audited. Sen. Corker may well have stuck a fork into this issue by clarifying, to some degree, what the “audit the Fed” really does. I also thought it was clever of Chairman Yellen to proffer that, while she did not favor the current “audit the Fed” effort, that it was Congress’ decision, not hers.
The House Financial Services Committee proved to be much more challenging to Chairman Yellen. Its members accused her of being politically aligned with the president and the secretary of the Department of the Treasury ‒ essentially being overly influenced by the administration. Committee members further suggested that passage of the “audit the Fed” bill could surely not subject her to any more political influence than what currently exists with the administration. It was certainly a testy exchange.
No one knows what will happen with the “audit the Fed” proposal. If the Government Accountability Office is given responsibility for auditing FOMC decisions and the process for making those decisions, will the FOMC continue to be as candid as it is today in discussing and setting monetary policy?
– S. Joe DeHaven