When Janet Yellen comes before the Senate Banking Committee on Nov. 14, the roadblock to her confirmation as Federal Reserve chairman will have little to do with her economic expertise. It will be how much she thinks the Fed should be treated differently from other government agencies.
Should the Fed’s interest-rate deliberations be subject to congressional audits? Do lawmakers have a right to know which banks have borrowed from the Fed’s discount window? Can the Fed be called accountable if Congress and the executive branch don’t know much of what goes on inside the monetary-policy temple?
This line of questioning will come largely from Sen. Rand Paul, the Kentucky Republican pushing legislation that would subject the Fed to audits (a cause his father, Ron Paul, long championed). The senator says he’ll try to delay Yellen’s confirmation until his measure gets a vote.
Yellen will be confirmed regardless, as even Paul concedes. Yet the senator has a point. The Fed’s accountability and transparency could stand some improvement. In 2012, 327 House members, including 89 Democrats, voted for his father’s bill. It got less traction in the Senate — only 33 senators backed it — yet Majority Leader Harry Reid had complained in 1995 on the Senate floor about the lack of interest in mandatory Fed audits “even though there is no entity in the world that controls our lives more.”
How right he was. At the same time, the Fed really is special by design. It is meant to be a hybrid agency. It owes its existence to a congressional charter directing it to secure maximum employment and stable prices — yet it gets no money through congressional appropriations, and its policies aren’t subject to White House approval. Its interest-rate deliberations aren’t audited, but its financial statements are. It publishes minutes of internal discussions, but three weeks after the Federal Open Market Committee has met (and even then no names are attached). Verbatim transcripts are released eventually — five years after the fact. A model of transparency it isn’t.