Obama, Romney and Federal Reserve independence

Politics Obama, Romney And The Federal Reserve

The Federal Reserve is a hot-button issue for some members of Congress, for instance the former presidential candidate Rep. Ron Paul from Texas. Though Paul's supporters were no doubt disappointed that he failed to win the nod from the GOP, his antipathy for the central bank did get some recognition with a spot in the Republican platform.

From the platform:

(The) Republican Party will work to advance substantive legislation that brings transparency and accountability to the Federal Reserve, the Federal Open Market Committee and the Fed's dealings with foreign central banks. The first step to increasing transparency and accountability is through an annual audit of the Federal Reserve's activities.

Though it sounds vaguely Ron-Paulian, Mitt Romney, Republican presidential nominee and former Massachusetts governor, has not advocated or endorsed the Audit the Fed bill approved by the House in July.

The bill does offer some specific ideas about where in the central bank to shine some light. Those include discount window and open market operations, agreements with foreign governments and central banks, and Federal Open Market Committee directives.

The discount window is the Federal Reserve's emergency lending operation for banks. When solvent banks can't find short-term financing through other means, they can go to the Fed as the lender of last resort. Banks that borrow through the discount window are not publically identified. The term "open market operations" refers to programs in which the central bank buys securities in the open market.

"The Fed, just like any bank, is always audited to the extent of basic operations to make sure there's no malfeasance," says David Stasavage, a professor of politics at New York University. "But, what they've pushed on more -- and I think this is more of a hot-button issue -- is the extent to which Federal Reserve deliberations or records of deliberations should be subject to greater scrutiny."

As it currently stands, the regular monetary policy meetings of the Federal Open Market Committee, or FOMC, are strictly closed-door affairs. Three weeks after the meeting, a paraphrasing of the minutes is released. After five years, a lightly edited verbatim transcript is released.

While Romney has publically thrown his support behind the idea of auditing the Fed, his campaign has not offered many details beyond that.

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Obama, Romney and Federal Reserve independence