Legislation giving U.S. government investigators broader authority to audit the Federal Reserve could erode confidence in the central bank’s independence and ability to conduct monetary policy, a top Fed official will tell lawmakers Friday.
Fed General Counsel Scott Alvarez, in testimony prepared for a Friday hearing, said legislation in the U.S. House of Representatives giving the Government Accountability Office greater leeway to examine the central bank could have a detrimental effect.
“These concerns likely would increase inflation fears and market interest rates and, ultimately, damage economic stability and job creation,” Alvarez said in the prepared remarks for the House Financial Services Committee hearing.
In addition to potentially undermining public and investor confidence in the Fed’s setting of monetary policy, Alvarez said the legislation could hurt the U.S. government’s relationships with other countries.
“Foreign central banks and governments likely would be less willing to engage in financial transactions with the Federal Reserve if these transactions were subject to policy review by the GAO,” he said.
The comments are in response to the growing support in the House of Representatives for legislation authored by Rep. Ron Paul (R., Texas), granting the GAO greater audit authority over the central bank. The legislation currently has 294 cosponors in the House from both sides of the aisle, as lawmakers are increasingly wary of the Fed’s actions during the financial crisis.
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