“Could Audit-the-Fed Be a Poison Pill?”
May 06, 2010, 9:00am


Annie Lowrey writes that Senator Bernard Sanders’ amendement to audit the Fed is a potential bill killer:

But as popular as auditing the Fed is on the Hill, members of the executive branch — including President Barack Obama, Treasury Secretary Timothy Geithner and Fed Chairman Ben Bernanke, who argue that the audit provisions might politicize the monetary policymaking process and weaken the Fed’s programs to aid systemically important firms with financial problems, as well as disrupting financial markets more generally — want the audit provision struck from the legislation. That could happen during the amendment process, or when the House and Senate bills are merged. But the provision stands a decent chance of making it through — raising the question of whether Obama might actually veto the bill if it comes with a strong audit-the-Fed measure.

I find it very hard to imagine the Obama administration vetoing its own financial regulation bill over a popular, populist measure. Presumably that’s why they’re trying to kill it in the Senate. Paradoxically, though, the harder Obama struggles against this idea, the more incentive conservative Republicans with no intention of voting yes on the bill have to vote with Sanders. That way, the whole package might fall apart in the Senate and nothing whatsoever will pass.

This is pie-in-the-sky, but I think that if Congress wants to get serious about supervising the Fed better what they ought to do is scrap the “dual mandate” in favor of something clearer. The nature of the dual mandate is that it’s impossible to say if the Fed is meeting its mandate, and thus impossible to hold anyone accountable. As an alternative, Congress could set a statutory nominal GDP trend target or a price level trend target and hold the leadership of the Fed accountable based on how good a job they do of hitting the target.