Republicans’ takeover of the U.S. Senate promises increased political turbulence for the Federal Reserve, which has already been under pressure from a GOP-controlled House, the Wall Street Journal reported today. Financial executives say that a GOP-led Senate would ratchet up congressional scrutiny of the central bank’s interest-rate policies, as well as its regulatory duties as overseer of the nation’s largest financial firms. Republicans haven’t controlled the Senate since before the 2008 financial crisis and recession, which put a spotlight on the Fed and its powers. Leading the GOP wish list in dealing with the Fed would be legislation to open the central bank to more scrutiny of its interest-rate decisions, using congressional audits of monetary-policy matters that Fed officials strongly oppose. Many Republican lawmakers also want to require the Fed to use a mathematical rule to guide interest-rate decisions or shift its focus more directly to inflation rather than inflation together with unemployment. All of that would come on top of heightened bipartisan scrutiny of the Fed’s regulatory moves. Many Republicans oppose the unconventional efforts the central bank has taken to bolster the U.S. economy over the past several years. The Fed last week announced the end of its long-running bond-buying stimulus program, known as quantitative easing. But that won’t quell GOP criticism, since many Republicans want Fed officials to move quickly now to raise interest rates from near zero and shrink the central bank’s balance sheet, which has climbed to near $4.5 trillion. Under the Republican-led Senate, Alabama Sen. Richard Shelby would likely become the next chairman of the Senate Banking Committee, which oversees the Fed. Shelby has been sharply critical of its regulatory performance in the run-up to the crisis. As the top Republican on the banking panel after the crisis, he supported stripping the central bank of its bank-supervision authority when Congress was writing the 2010 Dodd-Frank financial-regulatory overhaul law. He voted against Janet Yellen to be Fed chief, citing her support for the Fed’s bond-buying programs and his concerns that they could spark runaway inflation and other economic problems.
