Audit the Fed
August 10, 2017
“Audit the Fed,” formally known as the Federal Reserve Transparency Act, was conceived in 2009 by U.S. Representative Ron Paul (R., TX) in the wake of the Great Recession. It experienced some bipartisan support, and multiple editions over the years passed through the House before being defeated by the Senate under the term of President Obama, a vocal opponent of the movement. Under Republican control of both legislative bodies in addition to the presidency, Representative Thomas Massie (R., KY) and Senator Rand Paul (R., KY) reintroduced them in early January of 2017. 
Current State of Federal Reserve
Congress established the Federal Reserve in 1913 “to provide the nation with a safer, more flexible, and more stable monetary and financial system.”  It was created to operate independently of the government to ensure that its actions remained free of political influences, which experts suggest would be critical of monetary policy decisions.  The Federal Reserve system consists of twelve regional Reserve Banks overseen by the Board of Governors. The Federal Open Market Committee (FOMC), which decides the direction of the nation’s monetary policy, consists of the seven members of the Board of Governors as well as five of the twelve Reserve Bank presidents.  Four of those presidents, with the exception of the president of the Federal Reserve of New York, rotate their voting rights among all the other presidents.
Debate Behind the Bill
“Audit the Fed” seeks to significantly curtail the power of the FOMC by subjecting the discussions and decisions made at these meetings to review by the Government Accountability Office (GAO). Under the bill, the GAO would be able to put forth an assessment of the FOMC’s decisions to the public. Supporters of the Transparency Act argue the Federal Reserve has too much authority and has made questionable decisions without sufficient oversight. They point to the most recent financial crisis and show suspicion over the Fed’s accommodative monetary policy, in large part because of its decision to slash interest rates and bail out some of the largest financial firms. They also take aim at the Fed’s decision to accumulate a massive $4.5 trillion portfolio of securities.  Massie and others claim the bill would ensure that the Federal Reserve remains accountable and increases its transparency to the government and to the public. 
However, the opposition parties, consisting of most Democrats as well as many economists, argue the bill undermines the Federal Reserve’s independence by opening it up to governmental pressure. Former Chairman of the Federal Reserve Ben Bernanke sharply condemns the bill, stating it will prevent the Fed from making the best monetary policy decisions for the American economy.  He suggests that GAO analysis of the Fed’s decisions could lead to Congressional and even public backlash of the strategies used, particularly with the general unpopularity with monetary policy decision.
Problems with “Audit the Fed”
The name “Audit the Fed” is misleading in itself. The Federal Reserve already has its financial statements audited by the well-respected accounting firm, Deloitte & Touche, the results of which are published online. The minutes from every meeting of the FOMC are published as well, and the content of the Fed’s portfolio, including each individual security, is available to the public as well.
The Transparency Act shifts the audit from a private independent institution to the government-controlled GAO, repealing previous legislation that prevented such close governmental involvement. which would open it up to criticism from Congress. Bernanke cites sources in claiming that “Congress is not well-suited to make monetary policy decisions itself,” as it is inclined to focus on short-term economic benefit even at the cost of long-term growth. 
The Fed by no means deserves free reign, and it must be held accountable to the government and the people it serves. The argument that the government does not have enough control over the institution, however, falls short when understanding the incredible authority exercised by the executive. Each of the seven governors, including the chairman, is nominated by the president and is confirmed by Congress. Therefore, the president has the opportunity to shape the direction of monetary policy with his choices for appointments.
President Trump is in a particularly strong position to shape the course of monetary policy in the foreseeable future. There are currently three vacant seats on the Board of Governors, one likely to be filled by Trump’s recently announced nominee, investment-fund manager Randal Quarles. In 2018, Trump has the opportunity to replace Chairman Janet Yellen and Vice-Chairman Stanley Fischer, whose terms in their respective positions both expire. Even if they do decide to remain as Board members, as their terms last until 2024 and 2020, respectively, Trump would be able to change the two leading voices on monetary policy.
The Federal Reserve maintains its degree of independence from the government to preserve its ability to make the best decisions for the country. It is far from perfect, as history has shown, but the members of the Board of Governors and the FOMC are at the top of their field, and deserve the trust of Congress and the American people. Increasing transparency should continue to be a priority, but not at the cost of its independence; “Audit the Fed” is a step backwards, dangerously subjecting monetary policy to political influences.
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The views expressed on the Student Blog are the author’s opinions and don’t necessarily represent the Penn Wharton Public Policy Initiative’s strategies, recommendations, or opinions.