Why the Fed is Under New Scrutiny

The Marriner S. Eccles Federal Reserve Board Building - Washington, DC
The Marriner S. Eccles Federal Reserve Board Building – Washington, DC

The Hill reports:

The Federal Reserve is pushing back against mounting criticism of the central bank, as those pushing for reforms ratchet up their attacks. . . The uptick in outreach from the independent agency signals an effort to quell calls for significant changes at the Fed and assuage concerns that it has become too opaque and too cozy with Wall Street.

Even some independent observers are puzzled by the highly visible push back from the Fed:

“It almost seems like they’re running scared,” said Vern McKinley, an attorney who advises governments on central banking policies. “It’s beneath them to be doing this lobbying.”

McKinley, who has done work with the Fed and the Treasury Department, called the Fed’s political outreach efforts “surprising” and “unseemly.”

The Hill pointed out one reason for new energy behind the Audit the Fed campaign is that the 2010 Dodd-Frank reform law handed the banks new regulatory power over financial institutions. This mission creep opens up the Fed to normal political give-and-take, like other regulators:

“As Fed officials get deeper into the regulatory space, we are now starting to see them acting more like regulators,” [one] industry source said. “[They’re] commenting on issues of concern beyond interest rates — that’s new.”

[…]

“Clearly the Federal Reserve fears the information that may be disclosed as part of an audit,” Paul spokesman Brian Darling said. “Maybe they fear that the revolving door between the Wall Street and the Federal Reserve will be exposed. Or maybe they worry about the revolving door between the Department of Treasury and the Fed.”

The Hill is also separately reporting that Sen. Rand Paul is considering attaching the Audit the Fed proposal to the debt ceiling fight.

Over in the House,  Rand’s fellow Kentuckian Rep. Thomas Massie has introduced a version of Audit the Fed, and similar bills have passed overwhelmingly before.

“There’s still this sense — and I think it’s justified — among the public that this is an oligarchy that bears no resemblance to a democracy and that the Fed officials come from the industry that they are helping — Wall Street,” Massie told The Hill.

If a central bank wants to be exempt from public scrutiny, it certainly can’t also become a public regulatory body with multiple missions.

Maggie Gallagher is the editor of ThePulse2016.com.