Latest Twist in Audit the Fed Debate

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

The political firepower generated by Sen. Rand Paul’s Audit the Fed bill is now giving new attention to an alternative or potentially complimentary political response: to shift power from the New York Federal Reserve Bank to other regional Federal Reserve Banks.

The Federal Reserve System’s most crucial policy body is the Federal Open Market Committee, made up of members of the Board of Governors and of district Federal Reserve Bank presidents.  The FOMC is the body that decides whether to raise, lower, or hold steady the discount rate, widely considered the bellwether for establishing the other interest rates.

Does the current composition of the FOMC give too much power to Washington and Wall Street?

The Wall Street Journal’s Real Time Economics blog notes that a powerful political force—community banks—appears to be getting behind the proposal first championed by Dallas Federal Reserve Banks President Richard Fisher:

The Independent Community Bankers of America is calling on Congress to pass legislation that would implement several changes Mr. Fisher proposed earlier this month. The letter was first reported by Bloomberg News.

No lawmaker has introduced legislation to implement Mr. Fisher’s proposal, but a spokesman for Rep. Mac Thornberry (R., Texas) said the congressman is considering offering such a bill.

Mr. Fisher favors, among other things, ending the New York Fed president’s permanent role as vice chairman of the central bank’s policy-setting Federal Open Market Committee, and instead rotating the position among the 12 regional bank heads.

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