The Senate on Tuesday blocked legislation calling for tougher audits of the Federal Reserve, rebuffing an attempt by Republican presidential candidate Rand Paul to give lawmakers greater oversight of the central bank’s moves on interest rates.
The 53-44 vote fell short of the threshold to overcome a Democratic filibuster. But the Kentucky Republican, who is seeking the GOP’s nomination for president, was joined by independent Sen. Bernie Sanders of Vermont, a candidate for the Democratic nomination for president who occupies the opposite end of the political spectrum from Paul.
The measure calls for the Government Accountability Office, a watchdog agency for Congress, to scrutinize the Fed’s monetary policy and offer recommendations to lawmakers on ways to address any perceived problems.
Congress, the White House and Treasury officials have traditionally been careful to steer clear of questioning the Fed’s independence to set policy, and current law blocks the GAO from reviewing the way the agency conducts monetary policy or reviewing internal deliberations.
“Nowhere else but in Washington, D.C., would you find an institution with so much unchecked power,” Paul said.
The legislation is opposed by the White House and the Federal Reserve itself. Fed Chairman Janet Yellen wrote senators last week to warn that the legislation “would undermine the independence of the Federal Reserve and likely lead to an increase in inflation fears and market interest rates.”
Supporters of the bill say that the Fed has kept interest rates artificially low for decades, punishing risk-averse savings, prompting businesses to hoard cash and fueled booms — and busts — in the housing and stock markets.
“The Federal Reserve has the ability to create new money and spend it on whatever financial assets it wants, whenever it wants, while giving the new money to whichever banks it wants,” Paul said. “Low-income workers do not get the luxury of receiving the Fed’s newly created money first, nor do they do have the luxury of receiving the near-zero interest rates that the wealthy do.”
Sanders supported the legislation but approached it from a different perspective than Republicans. The candidate for the Democratic presidential nomination says the Fed was too quick to raise interest rates last month.
“Big bankers and their supporters in Congress have been telling us for years that runaway inflation is just around the corner. They have been dead wrong each time,” Sanders said in a recent op-ed in The New York Times. “Raising interest rates now is a disaster for small business owners who need loans to hire more workers and Americans who need more jobs and higher wages.”
Republican presidential candidate Sen. Marco Rubio of Florida also backed Paul’s bill.
Opponents of the legislation warned that it would invite meddling by Congress.
“This legislation’s about 535 members of Congress getting involved in federal monetary policy,’ said Sen. Sherrod Brown of Ohio, top Democrat on the Banking Committee. “I can’t imagine that the American people want a Federal Reserve where Congress is so involved that it’s disruptive.”
Under current law, the Fed’s financial statements are audited annually by an independent accounting firm and the GAO has authority to audit Fed actions on bank supervision and regulation.
Companion legislation passed the House in November almost entirely along party lines and earned a White House veto threat.
“Subjecting the Federal Reserve’s exercise of monetary policy authority to audits based on political whims of members of the Congress — of either party — threatens one of the central pillars of the nation’s financial system and economy, and would almost certainly have negative impacts on the Federal Reserve’s work to promote price stability and full employment,” the official administration policy statement said.
“This Fed monetary policy has contributed significantly to expanding income and wealth inequality,” countered bill supporter Sen. Pat Toomey(R-Pa). “This Fed policy has been pretty good for stocks — stock prices have gone up generally. It’s been terrible for people with a bank account.”