Tea Party favorite Sen. Rand Paul is threatening to place a hold on the nomination of Janet Yellen as chairman of the Federal Reserve unless he gets a vote on a bill to audit the Fed.
CNBC's Steve Liesman reported Friday morning that the Kentucky Republican is considering using the procedural move to block President Obama's nominee and force action on a measure that both he and his father, long-time libertarian activist Rep. Ron Paul, have boosted as a way to increase the central bank's accountability.
The move would raise the stakes in the process to confirm Yellen, the current Fed vice chairman. Yellen's confirmation was expected to be relatively quiet, after she got the nod following an unusually intense, campaign-style push over the summer by former Obama adviser Larry Summers to gain the nomination.
Paul has already signaled that he is aiming for such a conflict. In an Oct. 11 Time op-ed following Yellen's nomination, he denounced the Fed's large-scale bond purchases and wrote that it "might be the most secretive institution in our history." Paul announced that he intends "on using the Senate's constitutional power of consent to nominations as a means to educate the American people on the structural flaws and policies of the Fed that are bankrupting our nation."
In a video released Thursday by Campaign for Liberty, his father's political organization, Rand Paul said that he would vote "no" on Yellen without a vote on his bill to audit the Fed, and saying that "this will be the fight of our lives."
It would take 40 votes in the Senate for Paul to prevent a vote on Yellen's confirmation. It's unlikely that any Democrats would vote against her and not clear that enough of his fellow Republicans would join him.
Ron Paul has been a persistent critic of not just the Fed's policies, but its existence. He published a book in 2009 titled End the Fed.
At the end of his last term in Congress in 2012, Paul saw his bill to audit the Fed passed by a strong majority in the House, with 89 Democrats voting for it.
Following a provision included in the 2010 Dodd-Frank financial regulation overhaul, the Government Accountability Office already audits many of the Fed's functions. But Ron Paul's bill would have subjected all of the Fed's activities -- including its emergency loans to banks through its discount window -- to the GAO's inspections, as would Rand Paul's measure.
In 2012, Bloomberg News shined a light on the Fed's loans to banks during the height of the financial crisis after a long Freedom of Information Act process. Bloomberg found that, at its peak, the Fed's lending to troubled banks totaled $1.5 trillion, and that the Fed committed up to $7.7 trillion to rescuing the financial industry.
Auditing the Fed is a popular measure. A 2012 Reason-rupe poll found that 70 percent of Americans favor a law that would allow Congress to conduct an internal audit of the Fed.
Public understanding of what the Fed is and what it does, however, is poor, and Fed officials and most monetary policy experts caution against releasing the details of its operations to the public, saying that such a move could undermine the central bank's independence.
Testifying before Congress in 2012, Fed Chairman Ben Bernanke warned that Ron Paul's bill could create a "nightmare scenario" for the Fed by making its actions subject to review by individual members of Congress.
Some monetary policy experts also warn that a Fed audit could ruin the central bank's ability to act as the "lender of last resort" to banks facing a run. Troubled banks could be reluctant to take loans from the Fed if doing so would be taken by investors as a sign that they are insolvent. Fearing such a "stigma" from borrowing from the Fed might increase risk in the financial system if the Fed's discount window operations are made public.