Host: Congress is trying to gain more control over the Fed. A proposal by Texas Republican Ron Paul making it through the House Financial Services Committee late yesterday. Senior economic reporter Steve Lisman getting that information on that right now. Steve, what do you have?
Steve Liesman: Lisa, thank you very much. I just talked to a senior congressional staffer about this surprise passage of the Ron Paul amendment last night to the Regulatory Reform Bill that would allow audits of the Fed’s monetary policy.
Fed officials fear could be a major blow to its independence and possibly threaten higher inflation. The congressional staffer I talked to suggested that Barney Frank, the chairman of the House Financial Services Committee will continue to look for opportunities to alter the Paul amendment. What he said was, “The desire for Chairman Frank is to make sure monetary policy is truly independent. He will continue to work with his colleagues to make sure that there is no ambiguity there.” That’s the statement that we just received from the congressional staffer.
What’s all this coming from? A 1987 congressional exclusion barred the GAO, the Government Accounting Office, from auditing the Fed’s monetary policy. They could audit every part of the Fed and indeed there are nineteen other audits in the GAO going on right now, but not about monetary policy. The Paul amendment, which passed like 43 to 26, essentially repeals that exemption. Ron Paul, when interviewed last week on Squat Box, defended his bill.
Ron Paul: “Seventy-five percent of the American people say, yeah, we should know what’s going on with the Fed. So that’s 75 percent of the electorate saying that we should do our job and look at the Fed. It is the reason why there are well over two-thirds of the members of Congress supporting this bill.”
Steve Liesman: So that’s Ron Paul with 300 co-sponsors on one hand. CNBC [found] opposition to the amendment included both former chairmen of the Fed, Alan Greenspan and Paul Volcker, in a rare letter signed by both of them. They said, “We can assure you that this protection of internal deliberations and reaching decisions is indispensable in the Federal conduct of monetary policy.”
The Fed’s real concern: it’s all ready going to be under a sort of a political pressure when it comes time to raise rates. Unemployment will be unusually high, most likely when the Fed raises rates. Their fear is that this bill could increase that political pressure.