Volcker Letter to Dodd and Shelby Opposing Audit the Fed Bill

Dear Chairman Dodd and Senator Shelby:

I am writing about an issue bearing upon the Federal Reserve’s independence in conducting monetary policy that has long concerned me. I understand legislation is now being considered by the Senate.

The desire of the Congress to review the auditing arrangements for the Federal Reserve in the light of the extraordinary actions taken during the financial crisis is understandable. The Congress and the public need to be assured that such emergency action be taken with regard for professional standards and protecting the taxpayer’s interest.

Decades ago, during my own tenure at the Federal Reserve, an agreed approach toward GAO audits of the Federal Reserve carefully protected, as the relevant Senate Committee report of the time indicated, the Fed’s ability to “independently conduct the Nation’s monetary policy”. The point is that a threat to expose the details of active debate within the Federal Reserve about monetary policy decisions would tend to constraint that debate, expose the policy-making process to greater political pressure, affect markets, and risk the release of sensitive information about particular institutions and relationships with foreign authorities.

Consequently, I encourage the Senate to consider measures as now proposed in S.3217 that would provide the Congress with the information it needs to assess the implementation of the Federal Reserve’s unusual lending activities. At the same time it would preserve the confidentiality of the Federal Reserve in its deliberative processes to the extent needed to conduct monetary policy independently.

I am sending copies of this letter to Senators Cardin, Feinstein, Landrieu, Levin, Merkeley and Murray.

Sincerely,

Paul Volcker