GOP begins ‘rigorous’ review of the Fed

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House Republicans are vowing a comprehensive dissection of the Federal Reserve and its policies, with the end goal of crafting legislation in 2014 to overhaul the central bank.

House Financial Services Committee Chairman Jeb Hensarling (R-Texas) told reporters Wednesday that his panel will embark on an exhaustive review of the Fed that will go far beyond any previous congressional oversight effort.

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“It will be the most rigorous examination and oversight of the Federal Reserve in its history,” Hensarling said.

The review will coincide with the 100th anniversary of the creation of the central bank. GOP lawmakers hope to produce a bill toward the end of next year that would further alter the Fed’s mission and how it operates.

The scrutiny comes at a time of transition for the Fed, with current Vice Chairwoman Janet Yellen likely to be confirmed in December to take over the central bank from current head Ben Bernanke.

Meanwhile, the central bank is expected soon to begin winding down the stimulus it has injected into the economy over the last several years, an effort that some have worried could create turmoil in financial markets.

The GOP’s audit of the Fed will begin Thursday, when the monetary policy subcommittee chaired by Rep. John Campbell (R-Calif.) will hold its first hearing exploring the Fed’s mandates and those of other central banks.

While lawmakers in both parties have offered bills in the past to alter the Fed, this latest effort appears to be the most comprehensive in recent memory.

Hensarling, while a vocal critic of the Fed’s recent efforts to boost the economy, said he was entering into this process with an open mind, vowing any reform legislation would be informed by what is learned during the hearings.

“I believe that it has gone too far, yes, but again I have an open mind,” he said. “I’m willing to sit down with others and to have them explain or articulate why the Fed should be able to exercise certain powers.”

Fed officials and its advocates have often resisted congressional attempts to alter the institution or heighten oversight, warning that could subject the politically independent body to undue pressure from Washington. Republicans took pains to emphasize that their effort is intended to be constructive, not intimidating.

“The Fed is independent but it’s not unaccountable. Its mandates were set by Congress,” said Campbell. “I don’t see conflicts here at all with its independence.”

A host of academics and Fed experts, as well as both current and former Fed officials, will be invited to testify at the hearings, according to Hensarling.

While there are no firm reform plans, Hensarling indicated potential changes could include placing more explicit boundaries on how the Fed conducts its policies and establishing certain rules it must follow. The central bank embarked on a host of unprecedented policies during the financial crisis and resulting recession, much to the concern and consternation of Republicans.

“This is not your father’s Fed,” said Hensarling. “I’m not completely certain whether or not those who wrote the original legislation would recognize it today.”

Republicans have also pushed legislation in the past to cut the Fed’s mandate to pursue policies to maximize employment. Currently, the Fed operates under a mandate to both battle unemployment and control inflation, while conservatives would like to see it just focus on price stability.

Criticism and skepticism of the Fed has grown significantly in recent years.

A clear indication of that groundswell is that a once marginalized effort from retired Rep. Ron Paul (R-Texas) to fully subject the Fed’s decisions to outside audit passed the House in 2012 with strong bipartisan support. That bill was never brought up in the Senate, but Sen. Rand Paul (R-Ky.), the ex-representative’s son, has pushed for its consideration in the new Congress.

The review also comes as the Fed begins to exercise significantly heightened powers under the Dodd-Frank financial reform law.

That law also created the Consumer Financial Protection Bureau, which receives its funding directly from the Fed despite repeated GOP efforts to bring its budget under the control of appropriators.

Hensarling said that the heightened attention on the Fed from both parties in recent years is driving his hopes for productive legislative work.

“I’m cautiously optimistic that this is an area where there could be some common ground,” he said.

-- This article was updated at 6:30 p.m.