Is the Fed Audited?
The Fed is extensively audited, as required by federal law.
More than 425,000 hours each year are devoted to the following:
- Each Reserve bank has internal auditors who report to the bank's board of directors. This is similar to the auditing structure used by large corporations in the United States.
- Board of Governors staff examines activities of the Reserve banks. The Board has oversight authority for the entire Federal Reserve System.
- Financial statements of the regional Reserve banks and the Board of Governors must be audited every year by an external auditor.
- For more information, see the March 4, 2010, presentation by St. Louis Fed President James Bullard.
Fed activities are also periodically audited by the U.S. Government Accountability Office (GAO), which is the auditing arm of Congress. For example, the GAO released a report on Federal Reserve bank governance.
In addition, the Board of Governors publishes the Fed's balance sheet on a weekly basis, rather than quarterly as many companies do. The weekly report includes a statement of condition of each Reserve bank.
See the Board of Governors' audit page for additional information.
Is monetary policy audited?
Monetary policy is not audited in the traditional sense because there are no clear-cut standards for auditing policy decisions as there are for auditing financial statements, for example. However, the Fed has become increasingly transparent in its decision-making over the past few decades.
Among the ways in which the Fed is transparent with its policy decisions are:
- Federal Open Market Committee (FOMC) meetings:
- The FOMC releases a statement that details its policy decisions shortly after each meeting ends. By doing so, the media, economists and the public can immediately study each decision and comment on it.
- The FOMC releases the minutes of each meeting three weeks later. The minutes provide more insight into policy decisions, as well as into other timely issues discussed at the meeting. Full transcripts of meetings are released about five years later.
- The Fed chair holds press conferences four times a year. The purpose is to discuss the FOMC's economic projections and monetary policy decisions in more depth. The first of these press conferences was held April 27, 2011, following the FOMC meeting and statement.
- The Fed chair appears before Congress several times a year to discuss recent monetary policy, developments in the economy and the economic outlook. The Board of Governors is required by law to submit a report on these topics to Congress twice a year.
- The Fed chair, other members of the Board of Governors and presidents of the Reserve banks frequently give speeches outlining their views on monetary policy and explaining recent policy decisions.
- As mandated by the Dodd-Frank Act in 2010, the Fed has released details about actions it took during the financial crisis to stabilize
the financial system.
- To read why the Fed's emergency liquidity facilities were necessary, see the President's Message from the January 2011 issue of The Regional Economist.
How is the Federal Reserve accountable to the public?
The Federal Reserve Act seeks to balance political accountability and operational independence for the Federal Reserve System.
Some examples of how the Federal Reserve System is accountable are:
- The members of the Board of Governors are nominated by the president of the United States and confirmed by the Senate. In turn,
the Board of Governors has oversight authority for the entire Federal Reserve System.
- This includes budget authority; the budget for each Reserve bank must be approved by the Board of Governors.
- In addition, key appointments at each Reserve bank must be approved by the Board of Governors: president, first vice president, and the board of directors' chairman and vice chairman.
- The Fed's activities and financial statements are subject to numerous audits.
- In recent decades, the Fed has become increasingly transparent regarding its monetary policy decisions.
For more information about the Fed's independence and accountability, see an article in the September/October 2011 issue of Review, discussing why the Fed was designed the way it was.