What's also overlooked is that the Fed isn't the super-secretive, unaccountable agency of political stereotype. In 2009, Fed officials from Chairman Ben Bernanke on down have testified 32 times before congressional committees. The Fed makes detailed disclosures about its policies. After every meeting, the Federal Open Market Committee (FOMC), the key decision-making body on monetary policy, issues a statement explaining why it has -- or hasn't -- changed its interest-rate target. Until 1994, there were no announcements after FOMC meetings. Economists and investors had to guess.
Contrary to conventional wisdom, the Fed's activities are already widely audited. Deloitte & Touche examines the Fed's financial statements, which are published. The GAO can audit many Fed activities, including its banking regulation and supervision of the payments system. What it's barred from auditing is the conduct of monetary policy, including relations with foreign central banks such as the European Central Bank.
Congress has so far sensibly put this off limits. "Audit" has a different meaning in the context of the GAO than in everyday usage. It means examine, investigate, evaluate and, often, criticize. It's not just crunching numbers. The GAO usually undertakes studies at the request of someone in Congress. This suggests that the GAO could be used to influence or intimidate the Fed through selective investigations, which would involve access to internal Fed documents and interviews with policymakers. The Fed might be pressured to finance government deficits or to adopt an "undue focus on the short term," Vice Chairman Donald Kohn testified before Congress on July 9. Historically, similar pressures have caused other central banks to unleash inflationary torrents of money, Kohn said.
So now we get to Paul and Grayson. Their proposal preserves the Fed's most important independent functions as described by Meyer. Even if this amendment becomes law, monetary policy will not be "subject to veto by the executive or legislative branches of government."
If Paul and Grayson get their way, the act would allow the GAO to audit the Fed, which it is currently forbidden from doing. It would be able to look at the assets on the Fed's balance sheet and at loans it makes and what collateral it collects. It would tell us how newly formed bank holding companies like Goldman Sachs are using new privileges to borrow from the Fed. It would give us greater insight into the Fed's monetary policy decisions while giving us no more influence over the outcomes.
The proposal would not make unreleased Fed minutes public, and would it would still keep Fed minutes from being released immediately (currently there's a six- to seven-week lag that the amendment preserves and actually codifies).