Federal Reserve Chairman Ben Bernanke on Thursday stressed any
attempt to audit the board's monetary policy decisions would subject
the Fed to "short-term political considerations" -- forces that would
ultimately undermine the Fed's credibility and effectiveness.
In an exchange with Sen. Tim Johnson (D-S.D.) during Bernanke's closely watched confirmation hearing, the chairman noted the Fed is already subject to periodic audits by the Government Accountability Office. He said attempts to extend that oversight to include monetary policy -- which Congress exempted from the GAO's purview in 1978 -- would only jeopardize the Fed's central mission.
"So, to be very very clear... I welcome transparency," the chairman added. "I am, however, concerned with the auditing of monetary policy. What that means is that the GAO would be empowered... to look at all the policy materials prepared by staff, to interview members, and to basically second guess the Federal Reserve's decision in short order with very few protections."
Bernanke explained those rules could permit lawmakers to order audits whenever the Fed made monetary policy decisions that were politically unpopular or ineffective in the short term, which would hamstring the Fed's capabilities to manage the dollar.
Nevertheless, lawmakers are sure to forge ahead in the coming weeks with a series of proposals that would end the exemption Bernanke endorsed on Thursday.
Leading the way is Reps. Ron Paul (R-Tx.) and Alan Grayson (D-Fl.), who scored a committee's approval of their Fed audit proposal at the end of November. That effort already has dozens of co-sponsors in the House, but does not seem to have drawn a comparable number of supporters in the Senate.