GOP Senate gains could put Federal Reserve's independence in 'cross-hairs'

A surge of Republican pressure is bringing the Federal Reserve's long-held independence into question again, as conservative lawmakers seek to place the U.S. central bank under tougher scrutiny.

With Democrats controlling the Senate since the 2008 financial crisis, the bank and its supporters have had the luxury of shrugging off Fed-related laws from the Republican-controlled House of Representatives.

But a Republican takeover of the Senate in November's midterm elections would increase the chances of some of those measures hitting the Senate floor, and changing the way the Fed functions.

Two Republican congressmen proposed a new bill on Monday that would force the Fed to disclose information it has historically kept private. That bill will be discussed at a hearing on Thursday by the House Financial Services Committee, which is convening a panel to discuss reforming the Fed.

"I think there's a chance of legislation that affects us," Richmond Fed President Jeffrey Lacker, told reporters in Lynchburg, Va., last month. "I think it's something that people within the system are aware of. I just hope it's legislation that's constructive and useful."

At least two of the Senate seats up for grabs feature candidates who strongly support auditing the Fed, including Rep. Cory Gardner of Colorado and Rep. Steve Daines of Montana. Polls show Daines well ahead in his race while Gardner is neck and neck with his Democratic opponent.

Bills under proposal include measures that would force the Fed to be officially audited, conduct cost-benefit analysis before issuing regulations, restrict the power of the Fed chair, and strip the Fed of its low-unemployment mandate.

"While he believes the agency must remain independent, it should not be immune from congressional scrutiny," said Alee Lockman, Daines' communications director. Daines also believes Congress should change the Fed's mission, Lockman said.

The Fed has faced political pressure at various points in its 100-year history, starting with its inaction during the Great Depression, and for its high-inflation policies of the 1970s.

Bank bailouts and the Fed's economic stimulus after 2008 also brought the ire of politicians, and featured in the 2012 U.S. Republican presidential nomination campaign.

Republican candidate Rick Perry famously said that then Fed Chairman Ben Bernanke would be treated "pretty ugly" in Texas if he printed money ahead of the election.

"Hopefully common sense will prevail. Applying cost-benefit analysis to regulation is no different than what most regulatory agencies do," said Austan Goolsbee, economics professor at the University of Chicago, Booth School of Business.

"Moving deeper into the auditing of the Fed’s monetary policy decisions, however, puts the issue of Fed independence right in the cross-hairs," said Goolsbee, a former economic adviser to President Barack Obama and chairman of the Council of Economic Advisers from 2010-2011.