The Fed's commitment to being accountable and transparent
Before the Dodd-Frank Act, the Government Accountability Office already had authority to review many Federal Reserve System activities and operations. Congress considered several proposals to expand the GAO’s authority to include review of monetary policymaking. The Dodd-Frank Act ended up establishing several reviews of Federal Reserve governance and lending programs but did not allow the GAO to review the Fed's deliberations, decisions and actions on monetary policy.
The Federal Reserve's ability to act in the long-term best interests of the economy relies on its credibility and independence from short-term political pressure. Congress purposefully chose to exclude monetary policy from GAO review to ensure that the Fed could "independently conduct the nation's monetary policy." Countries where the central bank is protected from short-term political pressure have been shown to have better economic performance, including lower inflation and interest rates.
The Federal Reserve is committed to being accountable and transparent. To that end, the Fed publishes a wealth of information on its operations and is subject to extensive oversight, including external financial audits, GAO reviews and semi-annual reports to Congress. The Fed is the only central bank to publish its balance sheet on a weekly basis. In addition, the Federal Open Market Committee announces at each meeting a summary of its decision and reports the vote of the Committee.
Allowing the GAO to "audit" monetary policy decisions would politicize the process which could lead to worse outcomes, as the Great Inflation experience of the 1970s demonstrated. GAO reviews of monetary policy could hinder free and open discussions and deliberations, the heart of sound decision-making, if policymakers believed that their actions would be subject to political pressures.
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