Fed Chair Sees Elon Musk’s Audit Push As Threat To Central Bank’s Existence

Federal Reserve Chair Jerome Powell said he views proposals to “audit the Fed” floated by Elon Musk and others last week as a step toward “eliminating” the central bank 

Musk, the world’s richest person and influential advisor to President Donald Trump, revived a decades-old debate about overseeing the nation’s central bank this week. He made several posts on social media calling for the Fed to be audited in the lead-up to Powell’s congressional testimony this week.

The Government Accountability Office, the government’s independent watchdog agency, regularly audits the Fed’s activities. However, the GAO does not audit the central bank’s monetary policy decisions.

Musk is reviving an idea originated by Ron Paul, who the billionaire said could potentially run a new kind of audit. During his time in Congress, Paul targeted the Fed through several avenues, including audits that would look into how monetary policy decisions were made.

“The threat would be…you’d have investigations into decisions on monetary policy. And that would be a different thing,” Powell said in response to a question. “I think it was designed by its designer to be a step on the way to eliminating the Fed.”

A number of government entities have been caught in the crosshairs of a campaign to significantly shrink the federal government. For example, the administration has asked Consumer Financial Protection Bureau employees to cease most of their work, closed the agency’s headquarters, and said it will not accept further funding. Those actions were taken after Musk posted to his social media platform X “RIP CFPB.”

How Audit Could Be a Threat to Fed Independence

The audit proposal is the latest salvo in the conflict over whether the Federal Reserve should operate independently from the White House.

Congress tasks the Fed with managing the nation’s monetary policy with the two goals of keeping inflation low and employment high. The Fed does this mainly by changing the fed funds rate, which influences interest rates on all kinds of loans throughout the economy.

Powell argues the Fed must make monetary policies without interference from politicians because presidents would likely be tempted to push the Fed to adopt low interest rates. That would boost the economy while they were in office, reaping short-term political rewards but raising inflation risks in the long run.

Trump has repeatedly demanded that the Fed lower interest rates and has said that the president should have more of a say in the Fed’s decisions.

Studies of central banks around the world show banks that operate independently from their governments are more effective at keeping inflation under control than their counterparts with less independence.

Not the First Time Fed Audits Have Been Suggested

The battle of who should audit the Fed goes back to the early 2000s, when Paul, a former Libertarian and Republican politician, led efforts to fully audit the Federal Reserve. The now-89-year-old even introduced a bill to do so in 2012.

Paul, who wrote a book in 2009 called “End the Fed,” and proposed bills to abolish the bank, argued the central bank’s monetary policy causes inflation and that the nation should return to the gold standard.

Since then, some Republican lawmakers have proposed various bills to audit the Fed, but none have passed.