WASHINGTON - The House of Representatives is beginning an afternoon of debate on whether to put itself on record in favor of increased congressional influence on the Federal Reserve, the most direct effort yet by lawmakers to impinge on decades of increased central bank independence.
Riding a confluence of several anti-Fed themes including post-crisis anger, Tea Party antipathy and some Republican perceptions that Fed quantitative easing is helping President Barack Obama, the House will vote on the measure Wednesday with a good chance of passage.
The bill, H.R. 459, is titled "The Federal Reserve Transparency Act." It would allow the Government Accountability Office to conduct a "full audit" of the central bank. "Full" in this context means monetary policy decisions and the mechanisms behind them would, for the first time, be fair game for concurrent analysis by another arm of government.
For as long as the Senate is led by Democrats, the bill is sure to remain bottled up in the Senate Banking Committee and fall short of any full congressional approval -- the main reason the measure is getting relatively little attention.
Nevertheless, the fact it has come before the full House for a vote, with the apparent unanimous support of Republicans as well as the support of dozens of Democrats, is a historic high-water mark of anti-Fed sentiment.
The debate promises to be a procession of lawmakers taking the microphone to rail against the Fed, the economy and opposing political ideology, with only a sprinkling of Fed defenders.
The details on what a new avenue of oversight would involve are not specified in detail in the language of the bill. The GAO is given a year to complete an "audit," a word some analysts have said is being used as a euphemism for interference in this case.
The bill is assumed to allow further congressional requests for examinations of monetary policy, perhaps opening a regular channel for congressional pressure, particularly following any controversial policy moves.
Federal Reserve Chair Ben Bernanke, as recently as last week's testimony to Congress, repeated his opposition.
"I do feel it's a mistake to eliminate the exemption from monetary policy deliberations, which would effectively create a political influence or a political dampening effect on the Federal Reserve's policy deliberations," Bernanke said.
Bernanke's objections were along the lines of those of his predecessors, from Alan Greenspan -- who said ongoing congressional scrutiny would neutralize policy discussions -- back to William McChesney Martin. He famously resisted Lyndon Johnson's explicit objections to a 1965 rate hike that appeared to the White House to jeopardize the Vietnam War effort and the War on Poverty.
But none of Bernanke's predecessors faced the prospect of a two-thirds majority of one chamber of Congress actually placing its weight on the side of less Fed independence.
The bill will require 291 votes to pass and with 274 co-sponsors, passage appears within reach, even though it would need the help of 50 Democrats.
For the bill's author, Rep. Ron Paul, the bill represents the culmination of three decades of attempts to, as the title of his 2009 book proclaims, "End the Fed." Paul, whose presidential campaign gained a surprising amount of traction before faltering with just 158 delegates, is retiring from Congress after this session.
In a C-SPAN interview earlier in the day, Paul said his intent is not to increase congressional influence over monetary policy but to force Congress to get along without a Fed backstop.
"This is the reason Congress is irresponsible," he said. "They always know the Fed is there," ready to compensate for bad fiscal policy.
"I don't want the Fed to bail out the very super wealthy," he said, "and I don't want Congress to print money and bail out every mortgage holder."
Why now has his measure been able to reach the floor of the House? "Because of the crisis and the realization that the Fed is responsible," he replied.
Anyone who reads Internet comments that relate to Paul and his Fed effort can see the extent of vigorous support he enjoys from a number of directions as well as the depth of distrust many have of the Fed. Those who blame the Fed for a variety of alleged economic sins often lump the central bank together with the banking industry as a key cause of the financial crisis.
The bill includes a provision that even Paul is not enthusiastic about, a staff member told MNI: an order for the GAO to examine the reasons behind every foreclosure in the country in 2009 and 2010. The sweeping provision was inserted last month in a markup session by Rep. Elijah Cummings, a Maryland Democrat.
If the House does approve H.R. 459 Wednesday, the bill's prospects in the Senate may remain for Election Day to determine. And then it will ultimately be the voters who decide whether the Federal Reserve Transparency Act enters the history books as a turning point for central bank autonomy or a momentary testament to an underappreciation of the Fed's unique role in the economy.
"The younger generation, for some reason, is fascinated by this," Paul said of his efforts to dismantle the Fed. "Whether it will change before I leave Congress or not, the attention keeps growing and growing."
Market News International is a real-time global news service for fixed-income and foreign exchange market professionals. See www.marketnews.com.