Fact Checking the Fed on “Audit the Fed”

With the introduction of bills in both the House (H.R. 24) and Senate (S.264) allowing for a GAO audit of the Federal Reserve’s monetary policy, officials at both the Board and regional Fed banks have launched an attack on these efforts.  While we should all welcome this debate, it should be one based on facts.  Unfortunately some Fed officials have made a number of statements that could at best be called misleading. 

For instance Fed Governor Jerome Powell recently claimed “Audit the Fed also risks inserting the Congress directly into monetary policy decisionmaking”.  I’ve read and re-read every word of these bills and have yet to find such.  H.R. 24/S.264 provide for no role at all for Congress to insert itself into monetary policy, other than Congress’ existing powers.  I would urge Governor Powell to point us to which particular part of the bill he is referring to, as I cannot find it.

Perhaps Governor Powell is worried that an audit would allow Congress to regularly “harass” the Fed.  David Wessel states this fear as “Fed officials worry…that aggressive members of Congress unhappy with a Fed interest-rate decision could dispatch the GAO repeatedly to investigate, essentially using the GAO as a way to pressure the Fed to change its policies.”  Richmond Fed President Jeff Lacker has described this as “high frequency harassment”.  Such comments, however, display a fair amount of ignorance as to how GAO operates.  As someone who has handled GAO requests for the Senate Banking Committee, I can say there’s nothing “high frequency” about it.  Even H.R. 24/S.264 contemplates a 90 day turnaround after an audit is completed.  Neither Congress nor GAO is currently constituted in such a manner for any of this to happen at “high frequency”.

Several Fed policy-makers point out that the Fed is already “audited”.  Of course that’s besides the point since the bills are not about financial audits, but rather policy audits. 

Perhaps most bizarre is that Powell and Dallas Fed President Richard Fisher have ventured into the world of second-guessing the motives of the authors’ of H.R.24 and S.264.  Generally I believe it bad form to attribute motives to people who haven’t actually expressed those motives.  And of course public policy should be judged on its impact, not speculative motives.  For instance I’m not sure what to say to Fisher’s implication that Audit the Fed is being driven by antisemitism.  Or his implication that its authors want to distract from Congress’ failings on the budgetary front, especially since those behind H.R.24/S.264 have generally been at the forefront of trying to address our budgetary imbalances.  It isn’t an “either or”.  In fact given the Fed’s dominance of the treasury market, the Fed has been an enabler of the reckless fiscal policy which Fisher laments. 

Of course there are other more subjective claims presented as facts.  Powell first presents the Fed’s crisis actions as “very much in keeping with the traditional role of the Fed” but then later admits “the Fed’s actions after the onset of the financial crisis were unprecedented in scale and scope”.  So which is it? Keeping within tradition or unprecedented in scale and scope?  Unsurprisingly the Fed presents all its actions as correct and beyond question.  The fact that these actions are far from obvious “successes” further illustrates the need for an audit.

I welcome officials from the Fed to a broader discussion on the potential merits and costs of Audit the Fed.  That said, try first reading the bills in question and keeping to the facts.