It strikes us that it was passing strange for Chairman Janet Yellen to wave a copy of the central bank’s audited financial statement as a prop in answering Congress on Senator Rand Paul’s “Federal Reserve Transparency Act.” She did this earlier today at the hearing of the Senate Banking Committee. Her suggestion that a standard financial audit is what the Transparency Act is all about was almost contemptuous. So was her suggestion that the bill that has already twice passed the House — September’s bipartisan vote was 333 to 92 — is somehow designed to politicize monetary policy.
Just to underline the point, what Mrs. Yellen held up was an audited report of the kind that is done by accountants using green eyeshades. What the Congress wants is a look not only at the books but also at the Fed’s holdings and minutes and transactions overseas. It is not an attempt to interfere with Fed policy. It is an attempt to find out what the Federal Reserve is doing. It’s just shocking that the Federal Reserve would want to deny to its creator this kind of inspection once every, oh, say, century.
Particularly on this morning, when the world is digesting the Wall Street Journal’s astonishing scoop about how the Justice Department is investigating trading by “at least 10 major banks” for rigging the market in gold and other precious metals. The Journal quotes sources as reporting that American officials are looking into the question “even though European regulators dropped a similar probe after finding no evidence of wrongdoing.” In other words, these are important matters.
If so many of the big banks are being probed, why is it so all-fired irregular for Congress to be eying the Federal Reserve? Clearly the GOP’s accession to leadership in the Senate has put the Fed on red alert. One of the governors, Jerome Powell, in a speech February 9, foreshadowed Chairman Yellen’s warning with an appalling challenge to Congress. It laid out the Fed’s strategy — namely, it will seek to describe as political meddling any new look by the Congress.
Governor Powell insisted that the Fed “has been transparent, accountable, and subject to extensive oversight.” Yet he went on to cite a 1970s era statute that explicitly excludes from audits of the Fed’s board and banks “deliberations, decisions, or actions on monetary policy matters, including discount window operations, reserves of member banks, securities credit, interest on deposits, and open market operations” or any transactions directed by the Federal Open Market Committee; or any discussion within the bank of such transactions.
Those exemptions are precisely what Audit the Fed would override. Why is Mr. Powell in such a panic about this? What does the Fed really fear? One possibility that it fears the discovery of mystery of how the dollar can have collapsed to little more than a fifth of its value in constitutional specie in the first 15 years of this century while the consumer price index is suggesting that inflation has fled. Another possibility is that it fears discovery in the Congress of the same kinds of things the justice department suspects of the big banks.
But political interference? We don’t believe that’s what Mrs. Yellen is worried about. She is a big proponent of using her powers to attack unemployment, the biggest political mandate ever given to a central bank. Mrs. Yellen gives away her hand in opposing any rules based system for the Fed — that is, she opposes even the kind of modest reform advocated by Professor John Taylor of Stanford. Let Congress remember that it is the sole body to which the Constitution grants the power to borrow on the credit of the United States and to coin money and regulate the value thereof — and of foreign coin.