Over the weekend, Rep. Thomas Massie of Kentucky announced that H.R. 24, the “Federal Reserve Transparency Act,” would soon be considered in a special session in the House Oversight and Government Reform Committee. This is a “markup” session, where committee members work out any revisions before the bill is presented in the full House for a vote.
The proposed legislation is also known as “Audit the Fed.” The Federal Reserve is already audited, of course. The Federal Reserve Banks are audited internally, and overseen by the Federal Reserve Board of Governors. Federal Reserve Bank financial statements are audited by independent accounting firms, and the Federal Reserve is also subject to audits from the Government Accountability Office.
But backers of the Federal Reserve Transparency Act are calling for a full performance audit of the Federal Reserve. Current law includes important exceptions to GAO audit authority for the Fed, including monetary policy and ‘transactions made under the direction of the Federal Open Market Committee.’ The Federal Reserve Transparency Act would eliminate these exceptions, and would also call for GAO to audit Federal Reserve transactions with foreign entities.
The Federal Reserve has long asserted that restrictions on GAO audit authority are valuable safeguards for Fed “independence,” which promotes in turn the quality of its monetary policy. In light of the massive financial crisis of 2007-2009, however, and the "Great Recession," a case can also be made that Congress owes us a thorough review of the Fed’s actions (and inactions) leading up to, during, and after the crisis. This review could also usefully include an examination of the interplay between the Fed’s regulatory and supervisory responsibilities and monetary policy.
Three interesting and possibly important avenues a future audit could cover include the pricing of the massive transactions the Fed entered into in its 'quantitative easing' reaction to the financial crisis, the Fed's accounting for those transactions in light of the fact that the Fed makes its own accounting standards and changes them when it sees fit, and the Fed's transactions with foreign central banks and other international institutions (particularly as there does not appear to be a limited time frame for any GAO audit under this proposed legislation).