WASHINGTON – Federal Reserve deputy chairman Donald Kohn on Thursday defended the U.S. central bank's independence, saying congressional oversight could interfere with monetary policymaking.
If the Government Accountability Office (GAO), the investigative arm of Congress, were authorized to audit the Fed, that "could cast a chill on monetary policy deliberations," Kohn told a House of Representatives committee.
He acknowledged that the possibility of expanding the audit authority of the GAO over the Fed "has recently been discussed."
"Although Federal Reserve officials regularly explain the rationale for their policy decisions in public venues, the process of vetting ideas and proposals, many of which are never incorporated into policy decisions, could suffer from the threat of public disclosure," Kohn said.
He also defended the Fed's closed-door policy-setting meetings as vital for the financial markets and the public.
"The publication of the results of GAO audits related to monetary policy actions and deliberations could complicate and interfere with the communication of the FOMC's intentions regarding monetary policy to financial markets and the public more broadly," he said, referring to the Fed's policy-setting Federal Open Market Committee.
Credit rating agencies, Kohn warned, would lower their ratings on the United States if the independence of the central bank seemed threatened, which would make it more costly for the government to borrow at a time when its deficit is soaring amid a recession.
Republican Representative Ron Paul, a libertarian-leaning former 2008 presidential candidate, has proposed legislation that would subject the Fed to political pressure through the GAO audits. Paul, who has advocated abolishing the Fed, claims his measure has the support of more than half the House.
Although critics accuse the Fed of being overly secretive about its operations and decision making, the central bank has made gains in transparency after chairman Ben Bernanke took office in 2006.
The Fed routinely publishes edited minutes of its FOMC meetings three weeks after they are held.
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