In a move that serves as a capstone to Rep. Ron Paul’s colorful career, the House on Wednesday approved a bill that would let Congress’s chief investigators conduct a full audit of the Federal Reserve’s shrouded decision-making process.
The overwhelming 327-98 vote sends the bill to the Senate where Majority Leader Harry Reid, Nevada Democrat, has previously expressed support for an audit — though it’s unclear he’ll carve out time for the legislation this year.
But House passage already marks a high-water mark for those who for years have been pushing for an audit, led by Mr. Paul. The Texas Republican rode the issue to prominence in two different presidential campaigns, and said the bill is a chance for Congress to begin to reclaim the money and banking powers it is given in the Constitution, but had delegated to the Fed.
“It is up to us to reassert ourselves,” Mr. Paul said during floor debate Tuesday.
Fed Chairman Ben Bernanke doesn’t like the prospect of such a broad audit, calling it a “nightmare scenario” last week and saying it will lead to politicians second-guessing his decisions.
Opposition in Congress came chiefly from Democrats who said they doubt the bill ever becomes law — but worried about sending a signal to financial markets that lawmakers want to intervene in financial affairs.
“It seems to me what we’re talking about is taking some fake punches at the Federal Reserve but not doing anything serious,” said Rep. Barney Frank, the ranking Democrat on the House Financial Services Committee.
The bill would grant the Government Accountability Office, which is Congress’s chief investigative arm, the power to retroactively review the Fed’s decision-making — particularly on monetary policy.
Congress established the Federal Reserve nearly a century ago. The system, which consists of a board of governors and 12 regional banks, act as lenders of last resort to the country’s banking system, and it is charged both with fighting inflation and with promoting economic growth and employment.
The interest rates it sets have a direct impact on the rates charged by banks to consumers, but Congress shielded the board’s decision-making from view in order to give it independence.
After the recent financial collapse, many lawmakers have begun to question the Fed’s decisions and want a closer look at what it’s been doing.
Mr. Frank, though, said giving GAO powers to look at monetary policy is a precursor to Republicans trying to change the Fed’s mission overall to focus solely on monetary policy, not employment.
Congress has okayed more limited audits of the Fed in recent years, and following through on that a GAO report last year found the Fed repeatedly invoked emergency authority to expand its lending during the Wall Street crisis in 2008 and 2009, including major loans to prop up the housing market.
The audit also found the Federal Reserve Bank of New York, which had a major role in the lending, did not have sufficient controls to prevent conflicts of interest for its employees.