Yesterday, another interesting amendment (.pdf) to the House's financial regulation bill made it through committee. It would require an audit of the Federal Reserve. The amendment offered by Rep. Mevlin Watt (D-NC) has the spirit of a bill written up by Rep. Ron Paul (R-TX) calling for a similar end. Paul has been an outspoken critic of the Fed and offered a companion amendment (.pdf), along with Rep. Alan Grayson (D-FL), broadening the audit. It also passed. Some people are worried that the amendments could endanger the independence of the Fed. I think that's an exaggeration.
For starters, I think it's important to look at what these amendments actually say. They really just seek to provide Congress a better understanding of what's going on at the Fed. They basically give politicians the ability to determine whether the Fed is following its own policies and procedures. Essentially, Congress wants to be sure that the Fed is running a tight ship.
What they don't do is allow the auditor or members of Congress to question the Fed's monetary policy decisions. In fact they explicitly say that the auditor can't make recommendations about Fed loans or liquidity facilities. They don't even require knowing everything said by Fed officials. One section of Paul and Grayson's companion amendment reads:
Audits of the Federal Reserve Board and Federal reserve banks shall not include unreleased transcripts or minutes of meetings of the Board of Governors or of the Federal Open Market Committee.
They aren't looking to give Congress the power to micromanage the Fed. The companion amendment makes crystal clear that this legislation is not to be construed:
as interference or dictation of monetary policy to the Federal Reserve System by the Congress or the Government Accountability Office;
And as far as I can see, there really aren't any enforcement provisions. In other words, even if Congress doesn't like what it finds, I don't know that there's much it can do. Maybe it can vote to remove the Fed Chairman, but unless serious problems are found, I can't begin to imagine that happening. And remember -- it can't be due to monetary policy decisions, per Congress' own words. As a result, nothing I see in the amendments harm the Fed's independent nature.
Of course, these are only amendments to the House's version of the bill. Even though Congress' final version of financial regulation will probably look more like the House's version than the Senate's more ambitious version, any amendment could go by the wayside. So it's definitely still possible that the Senate could eliminate the audit provisions when the two versions are reconciled.
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