WASHINGTON — Legislation to audit the Federal Reserve's monetary policy fell short of the 60 votes necessary to win a key procedural motion in the Senate on Tuesday.
The Federal Reserve Transparency Act of 2015, introduced by presidential hopeful Sen. Rand Paul, R-Ky., and supported by Democratic presidential candidate Sen. Bernie Sanders of Vermont, would have subjected the Fed to regular audits from the Government Accountability Office. But the bill's vote tally on a motion to end debate, 53-44, fell shy of the 60-vote threshold to have it taken up by the full chamber.
Leading up to the vote, Paul defended the rationale for the legislation, arguing that assertions by Fed officials that it would interfere with monetary policymaking were unfounded.
"Some say that an audit will politicize the Fed," Paul said on the Senate floor. "I find this claim odd given both sides of the aisle's support for the bill.
The legislation "simply says that the Government Accountability Office … that they be allowed to audit the fed, a full and thorough audit," he added. "I can't seem to understand how a simple check by the GAO to ensure that there are no conflicts of interest will politicize anything."
But some progressives, including Sen. Sherrod Brown, the lead Democrat on the Senate Banking Committee, criticized the bill. He said it would "introduce politics into the Federal Reserve's monetary policy decisions, which could have dangerous implications for financial stability."
" 'Audit the Fed' isn't about transparency; it's about giving 535 individual members of Congress the ability to micromanage monetary policy," Brown said.
Brown said that the Fed has become much more transparent under former Fed Chair Ben Bernanke and its current chief, Janet Yellen.
But Paul argued the central bank was captive to Wall Street interests.
"There is a revolving door between the Fed, the Treasury, and Wall Street — a revolving door in a building that is all too eager to enrich big banks and asset holders at the expense of everyone else," Paul said.
The Kentucky Republican argued that the Fed should stop paying interest on excess reserves that banks hold, deriding it as a giveaway. Sanders similarly called for ending the practice in his speech in New York last week.
"The Fed also exacerbates income inequality by paying large commercial banks $12 billion in interest. This is a departure from nearly a century of practice, while individual savers earn practically no interest — the big banks are given $12 billion in interest," Paul said.
Yellen and other Fed officials have said that paying interest on bank reserves is a vital monetary policy tool. Many outside observers warn it could have dire economic consequences if Congress stripped the Fed of those powers.
"It's a tool that almost all advanced countries have and rely on as a key tool of monetary policy," Yellen said at a hearing last month.