WASHINGTON The Federal Reserve Board has long argued its independence would be harmed if the central bank were audited by Congress. But House Republicans sought to turn the tables on that defense Wednesday, charging that the Fed is already too influenced by the White House.
At Fed Chair Janet Yellen's second Capitol Hill hearing in two days, House Financial Services Committee Chairman Jeb Hensarling, R-Texas, said the Fed has met far more regularly with President Obama and Treasury Secretary Jack Lew than lawmakers, suggesting undue executive branch involvement. It is therefore necessary, Hensarling said, for Congress to act to curb that influence.
"The greatest threat to the Fed independence comes from the executive branch, not the legislative," Hensarling said. "I for one believe that Fed reforms are needed, and I for one believe Fed reforms are coming."
Republicans' attempt to paint the Fed as politically aligned with the administration comes as Fed officials, including Yellen herself, have portrayed "Audit the Fed" bills as detrimental to the agency's vaunted political independence. As recently as Tuesday, when she testified in the Senate, Yellen said the legislative proposals "would politicize monetary policy [and] would bring short-term political pressures to bear on the Fed."
Some GOP lawmakers now argue that meetings between Fed and White House officials are further evidence of the need for more congressional scrutiny of the central bank. Bill Huizenga, R-Mich., criticized Yellen for advancing "1600 Pennsylvania Avenue policies", such as resisting changes to the Dodd-Frank Act.
Rep. Scott Garrett, R-N.J., put an even finer point on it. He said Yellen's executive-branch meetings, an "open door policy with liberal advocacy groups," and opposition to proposals to restrict the Fed essentially amount to political operations. Garrett even suggested an October speech by Yellen outlining the dangers of economic inequality appeared aimed at helping Democrats right before the election.
"It paints a pretty damning picture, I think, that the Fed has already been completely immersed and guided by partisan politics," Garrett said. "When one thinks about it, I'm not sure who is lobbying more, you or the banks you oversee."
Yellen responded by saying the Fed is obligated not only to set monetary policy but also to supervise banks. Monetary policy is in no way coordinated with or influenced by the executive branch, she said, but its bank regulatory duties must be coordinated closely with other regulators, including at Treasury.
"The Federal Reserve is independent. I do not discuss monetary policy or actions that we are going to take with the secretary [of the Treasury] or the executive branch," Yellen said.
She added that, despite efforts to audit the central bank, the Fed already does answer to Capitol Hill, including her regular appearances to testify. In Tuesday's hearing, Yellen also cited a contract the Fed has with outside auditors to evaluate the agency's books.
"It is critically important that the Fed be accountable to Congress," she said Wednesday. "We are accountable to Congress, and I personally and the Fed as an institution seek to provide all the input that Congress needs for appropriate oversight."
Rep. Michael Capuano, D-Mass., called the suggestion that Yellen must provide more details about her private meetings "hypocrisy" since congressional members are subject to no such requirement. He noted, sarcastically, that the Fed chair would naturally meet with the president and other financial regulators more often than with members of Congress.
"I am shocked shocked, I tell you that you are actually meeting with the president, or the secretary of the Treasury," Capuano said to Yellen. "I am personally shocked that you or anyone else would actually care about income inequality."