Republican Lawmakers Question Fed’s Independence

By Lucy Ren

On the second day of the semiannual monetary policy report to Congress, Federal Reserve Chairwoman Janet Yellen faced a wave of criticism that Republican lawmakers heaped on her close relationship with the White House.

Representative William Huizenga (R-MI) asserted that Yellen was “dealing with the executive branch instead of the legislative branch.”

Rep. Bill Huizenga (Connormah, Creative Commons)
Rep. Bill Huizenga (Connormah, Creative Commons)

“Shouldn’t we be equally concerned about threats posed by executive interference?” Huizenga asked. He specifically criticized Yellen for meeting more frequently with Treasury Secretary Jacob Lew rather than with Congress. He also urged the Fed to testify before Congress four times a year instead of two.

Yellen denied that she discussed monetary policy or actions that the Fed is going to take with the secretary or the executive branch.

“It is obviously critically important that the Federal Reserve be accountable to Congress,” Yellen said. “I, personally, and the Federal Reserve as an institution, seek to provide all of the input that Congress needs for appropriate oversight.”

Representative Sean Duffy (R-WI) criticized Yellen for “taking a Democratic line” as she gave a speech on income inequality during last fall’s Congressional campaigns, when Democrats were making the topic a major issue.

“Why would you not expect the Fed to have a close relationship with the Treasury?” commented Michael Carey, chief economist for Credit Agricole Corporate and Investment Bank, in a telephone interview after the hearing. “I think Congress should just get out of the way and let the Fed do their jobs properly.”

Yellen strongly criticized the “Audit the Fed” bill in both days of hearings, stressing that it would deplete the independence of the central bank. The audit legislation, which was re-introduced by Republican Senator Rand Paul of Kentucky, demands greater transparency and accountability from the central bank.

Rep. Scott Garrett (Wikimedia Commons)
Rep. Scott Garrett (Wikimedia Commons)

“Audit the Fed is a bill that would politicize monetary policy, would bring short-term political pressures to bear on the Fed,” she said on Tuesday before the Senate Banking Committee. “Academic studies establish beyond a shadow of a doubt that independent central banks perform better,” she said.

“In the early ’70s, when inflation built and became an endemic problem, history suggests there was political pressure on the Fed that interfered with its decision making,” Yellen said on Tuesday. She questioned whether Volcker would have had “the courage to take the steps necessary to bring down inflation” had Audit the Fed had been around.

Representative Scott Garrett (R-N.J.) argued that Audit the Fed “wouldn’t make the Fed more political than it already is,” and urged the Fed to meet with people “on the other side.” He also accused the Fed for “acting on a partisan basis,” criticizing its lobbying of the White House.

In response to Rep. Garrett, Yellen said the Fed meets with “a wide range of groups,” and that her meeting schedule was “all in the public domain.”

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Yellen scheduled more than 950 meetings from February through December. (Wall Street Journal, Lucy Ren/Medill)

From February to December, Yellen had 51 meetings with White House officials, and only 23 with lawmakers, according to the chairwoman’s monthly calendars obtained by the Wall Street Journal under the federal Freedom of Information Act.

Photo at Top: Federal Reserve Chairwoman Janet Yellen spoke in response to a question during her testimony before the House Financial Services Committee in Washington on Wednesday. (Bloomberg Business, YouTube)