Federal Reserve

Will Congress Finally Pass 'Audit the Fed' Legislation?

The Federal Reserve Transparency Act would not politicize the Fed, but will provide Congress with more information.

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Board of Governors of the Federal Reserve System building in Washington, D.C.
Rafael Saldaña / Flickr

The Federal Reserve Transparency Act of 2017 could finally fulfill a dream by many of eliminating the Fed's unique exemption from Government Accountability Office (GAO) oversight.

Under H.R. 24—popularly known as "Audit the Fed" legislation—the comptroller general would conduct an audit of Board of Governor operations and report his findings to Congress. The House bill is sponsored by Rep. Thomas Massie (R–Ky.), and companion legislation is sponsored by Senator Rand Paul (R–Ky.) in the Senate.

The same legislation passed the House in 2012 and 2014, only to die in the Senate. Janet Yellen and other Fed officials are consistently opposed to GAO oversight. (This bill has previously been covered by Reason here).

It should come as no surprise that the bill hits a nerve with Fed officials. As summarized by a Rand Paul spokesman: "Clearly the Federal Reserve fears the information that may be disclosed as part of an audit."

After the House Committee on Oversight and Government Reform quickly passed the 2017 bill in late March, Democrats reacted with similar dramatics. Committee member Rep. Eleanor Holmes Norton (D–D.C.) claimed that "This bill would open the floodgates to political interference in monetary-policy making."

Oversight of the Fed requires a delicate balancing act. A central bank too sensitive to political pressure could attract the political business cycle: Intentionally lowering interest rates to give the economy a little pre-election boost resulting in an economic boom then bust.

But under H.R. 24, such hypothetical floodgates would remain closed. In an emailed response to Reason, George Selgin, director of the Center for Monetary and Financial Alternatives at the Cato Institute, provides some perspective:

"Fed officials' reaction to proposals to 'audit' the Fed—proposals that in fact call for nothing more than a relaxation of some very severe current restrictions on the GAO's ability to investigate the Fed's activities—can only be described as hysterical. The changes in question would not at all increase Congress's ability to influence or interfere with the Fed's conduct of monetary policy. They would merely allow Congress access to more information, from a disinterested, independent, and highly reputable source, to assist it in performing its existing oversight responsibilities. The spectacle of so many officials, many of them well-trained economists, arguing, in essence, that so far as this Congressional duty is concerned, less information is better, is frankly rather shameful."

Rep. Massie has been an outspoken critic of the Fed, blaming the 2008 financial crisis on low interest rates. In an op-ed, he describes how the Fed has not earned their privilege of privacy through successful policy:

"One hundred years ago, Congress established the Fed and delegated its constitutional authority 'to coin money and regulate the value thereof.' Under the Fed's reckless inflationary policies, the dollar has lost over 95 percent of its value since then. My bill, H.R. 24, the 'Federal Reserve Transparency Act,' would remove the veil of secrecy around the Fed."

While the previous attempts to audit the fed have failed, Republican control in both houses and vocal support from President Trump may make Federal Reserve oversight a reality.

NEXT: Trump's First Leak Arrest: An Old War on Leakers, Not a New War on the Press

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  1. A central bank too sensitive to political pressure could attract the political business cycle: Intentionally lowering interest rates to give the economy a little pre-election boost resulting in an economic boom then bust.

    That door swings both ways. Lack of transparency makes it incredibly easy to hide corruption, whether from internal biases or from external pressure.

  2. Either end the Fed, or don’t audit it.

    If the government weren’t using the Fed to do shady things with the economy and the national debt, there wouldn’t be any reason for its existence.

    To allow it to exist and then pretend that we-the-people can put reins on it to make it act within the bounds of ethics and law is pretty silly.

    If we wanted the economy to behave normally and respond in rational, realistic ways, we would simply do so, which would involve eliminating the Fed.

    Admit it is what it is and either allow it to exist, or don’t.

    1. Apply the same principle to every political body. See any problem with that?

      “Trust us, we’re from the government and we’re here to help.”

      Ya right.

      1. Apply the same principle to every political body. See any problem with that?

        Nope.

        But on this one in particular, I follow Friedman’s logic for abandoning the gold standard.

        If your currency is going to be commodity-based, you don’t need a committee to engineer its value.

        If you’re going to have a committee responsible for engineering the value of the currency, you can’t peg the currency to a commodity value – you just have to have faith in the committee.

        If we could trust governments not to manipulate currency values in order to inflate away their debts, we could have a gold standard. Since governments manipulate currency to inflate away their debts as almost a basic function of issuing currency in the first place, letting them do so in a planned and measured way makes less headaches for everyone else.

        But just because we’ve legalized the theft in order to manage it, let’s not start shining lights in the windows on the premise that the theft is no longer going on.

        1. But why single out the Fed for an exemption from accountability?

          1. I thought you meant the “abolish it or acknowledge why you created it” principle.

            It’s the same principle you would apply to intelligence agencies. There’s a way in which the secretiveness of the Fed is fundamental to its purpose in contrast to, say, the Department of Education.

            It’s a similar argument to why we don’t audit the CIA.

            I don’t think either institution should exist, but it’s sort of like having the Ring of Power – we want the debate to be about how we can make it good. We can’t – it just is what it is.

            And I’m not saying the Fed should be unaccountable – they’re not. They’re subject to the government in pretty direct ways. I just don’t think letting Congress audit them is going to lead to productive results.

  3. I’m going to guess “no”.

    1. Yeah, the only audit I suspect the Fed will ever get will be a shocking post-mortem.

  4. The fed is already politicized and has been for a very long time. It’s time to let some sunshine in.

    1. +1 Jesus Christ, Superstar

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