Several senior House Democrats warned that passing a bill from Rep. Ron Paul (R-Texas) requiring a full audit of the Federal Reserve Board's monetary policy decisions will allow Congress greater leverage to put political pressure on these decisions, which they said would cause serious problems in the U.S. and global financial markets.
The Federal Reserve Transparency Act, H.R. 459, was expected to come up for a vote Wednesday, and seemed poised for passage given its 270 co-sponsors, including nearly four dozen Democrats. Nonetheless, many Democrats used the Tuesday floor debate to warn about the chances that Congress might use the audit to politicize monetary policy decisions.
"Unfortunately … we in Congress have shown too frequently our inability in a political environment to make tough choices," Hoyer said.
House Financial Services Committee ranking member Barney Frank (D-Mass.) said that while he doubts the bill would ever become law, raising the prospects of congressional interference with the Fed could create significant uncertainty for participants in the financial markets.
"They will see it as political interference, not with the contracting procedures, not with the budget, not with how many cars they have, but with how they decide on interest rates," he said. "And the perception that the Congress is going to politicize the way in which interest rates are set will in itself have a destabilizing effect."
Frank and Rep. Mel Watt (D-N.C.) also accused Republicans of using the audit to attack the Fed's legal mandate to maintain a low unemployment rate, as well as stable interest rates.
Some Democrats, such as Reps. Dennis Kucinich (D-Ohio) and William Clay (D-Mo.), sided with Republicans, who argued that the bill would bring transparency to the Fed's decision and give all Americans a greater understanding of the Fed's activities. While the 2010 Dodd-Frank financial reform law expands the auditing of the Fed, it does not apply to the Fed's monetary policy decisions, which the GOP said is a shortcoming.
"GAO remains restricted under the current law from conducting a broader audit of the Fed that includes, for instance, a review of the Fed's monetary policy operations, and its agreements with foreign governments and central banks," said House Oversight and Government Reform Committee Chairman Darrell Issa (R-Calif.).
"In recent years, the Fed's extraordinary interventions into the economy's fiscal markets have led some to call into question its independence," he added. "We do not ask for an audit for that reason, we ask for an audit because the American people ultimately must be able to hold the Fed accountable, and to do so, they must know at least in retrospect what the Fed has done over these many years."
Rep. Paul, the bill's sponsor, rejected the argument that more information would politicize the Fed.
"To say that we should have secrecy and say that it's political to have transparency … well, it's very political when you have a Federal Reserve that can bail out one company and not another company," Paul said. "That's pretty political.
"I think when people talk about independence and having this privacy of the central bank means they want secrecy, and secrecy is not good," Paul added. "We should have privacy for the individual, but we should have openness of government all the time, and we've drifted a long way from that."