Yellen: Fed Will Keep Swimming on the Bernanke Stream

Yellen noted that the Government Accountability Office already audits the central bank and its books are independently reviewed.

“The Federal Reserve should be audited,” Yellen said. “It should be open. It should be transparent.” But she added that she strongly objected to anything that would interfere with the independence of monetary policy by injecting political pressure into the central bank’s decisions.

Yellen noted that Congress has exempted the Fed’s monetary policy decisions from audits, and she would oppose any efforts to change that.

“Congress wisely made the Fed independent in the implementation of policy because it was understood that we sometimes have to make difficult decisions that would be hard for Congress to make in the best long-run interests of the country,” Yellen said.

Rep. Jeb Hensarling (R-Texas), the committee’s chairman, challenged the Fed’s departure from a decades-old monetary policy rule that Yellen once referred to as the mark of a “sensible” central bank.

“So that begs the question today, using your words, are you a sensible central banker, and if not, when will you become one?" asked Hensarling.

Yellen explained that in response to the financial crisis the rule would have prescribed the central back to push interest rates to below zero, which is impossible.

Some Republicans expressed concern that the Fed’s extraordinary support of the economy could eventually stoke inflation or destabilize financial markets.

Hensarling, a critic of the Fed’s asset purchases, questioned whether the Fed’s policies were creating more uncertainty and distorting financial markets.

The committee also heard testimony from several prominent economists. Hensarling added the second panel – composed of economic experts largely critical of the Fed’s recent policies – to comment on Yellen’s testimony.

John B. Taylor, a professor at Stanford University and the creator of a rule for guiding monetary policy, said discretionary economic and spending policies are to blame for the “disappointing” U.S. recovery.

“Monetary policy, regulatory policy, and fiscal policy each became more discretionary, more interventionist, and less predictable starting in the years leading up to the financial crisis and have largely remained in that mode,” Taylor said in his written testimony.

He said monetary policy would have been “far better” in the last few years had it been based on a predictable set of policy rules.