'Audit' push challenges Federal Reserve's independence

After unemployment and deflation, Federal Reserve chair Janet Yellen finds herself in her toughest battle yet, fighting a push by Congress to assert itself over monetary policy.
Newly in control of both houses on Capitol Hill, Republicans accuse the Fed of misguided policies and political bias, saying the world's most powerful central bank is too autonomous and unaccountable.
In January, they submitted "Audit the Fed" legislation that could give lawmakers  power over setting interest rates and how banks are policed.
The Fed calls it a blatant move to politicize its work. But it is clearly worried that the law might pass, impinging on its vaunted independence.
Yellen got a taste this week of what's to come when legislators accused her of going way beyond the Fed's mandate and of actively supporting the Democratic Party's policies.
"The Fed already has been completely immersed and guided by partisan politics," said Congressman Scott Garrett.
"You're sticking your nose in places that you have no business to be... You are favoring capital over labor and you are favoring Wall Street over the folks back home," blasted his colleague Sean Duffy.
The new legislation would change a 1978 law that gave the Government Accountability Office the power to audit various activities of the Fed. That law very explicitly kept the GAO away from the conduct of monetary policy.
"Audit the Fed" removes that exception, and would allow any legislator to demand the GAO examine ongoing monetary policy activities.
Leading the effort is Senator Rand Paul, the son of libertarian former congressman Ron Paul who advocated abolishing the central bank altogether.
Rand Paul says he wants the Fed's balance sheet audited, alleging that it is hiding massive liabilities that put the US financial system at risk.
The Fed counters that its balance sheet is already fully public and certified by outside accountants.
"The Federal Reserve is extensively audited," Yellen said at her semi-annual policy presentation to Congress this week, also required since 1978.
"Audit", she said, "is a bill that would politicize monetary policy."
- 'Who's the boss?' -
Yellen has spent most of her just-completed first year as Fed chair preparing for a return to a "normal" monetary policy, which is proving to be a rocky process after six years of flooding the markets with easy money to recover from the 2008-09 crisis.
While markets have generally appreciated her efforts and the economy has picked up pace, Republicans say the Fed has a lot of bad policy to answer for.
One legislator this week said Yellen's predecessor Ben Bernanke moved the Fed into extreme money-printing mode during the crisis because "he was trying to seek political favor for his reappointment as chair."
Another called Yellen's public discussion of income inequality a conscious effort to support Democrats ahead of the last election. "I hear you taking a Democrat line," he said.
Yellen bristled at the accusations. "I am not making political statements. I am discussing a significant problem that faces America."
Alex Pollock, a former banker and now a fellow at the conservative American Enterprise Institute, said the campaign is not really about auditing the Fed's accounts.
"It's about 'Who is the boss here?'" he told AFP. "It's an audit of the actions, the dubious theories, and the systemic risk-creating actions of the Fed."
He admitted that nothing is clear about the parameters of what Congress could do if the "Audit" law is passed. But he argued that nothing is wrong with raising Congressional oversight over an agency that is essentially policed by itself.
"The Federal Reserve ... has amassed enormous power," he said. "There is no evidence at all that the Fed has the special economic knowledge to make it competent to be trusted with this enormous power."
The Fed, with White House support, is pushing back hard. President Barack Obama's top economic advisor labelled the "Audit" law "dangerous.
Richard Fisher, the Dallas Fed chief, denounced it as "nothing more than an attempt to override purely economic judgements and bend monetary policy to the will of politicians."
"I can think of nothing that would do more damage to our nation’s prosperity," he said.
Congress though is pushing ahead. On Tuesday the powerful Senate Banking Committee, which must first approve the bill before it goes to the full body,  plans a full hearing on "Federal Reserve Accountability and Reform".
The witness list is stacked with advocates of curbing the Fed's regulatory powers and opponents of its crisis-era policies, suggesting the direction in which the Republican-dominated panel is leaning.