GOP Senate Takeover Would Put Fed Under Microscope
By Victoria McGrane
A Republican takeover of the U.S. Senate on Election Day would promise increased political turbulence for the Federal Reserve. Financial executives say 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. “If the Republicans take control of the Senate and thus have control of both the House and the Senate—two words for the Federal Reserve: Watch out,” said Camden Fine, president of the Independent Community Bankers of America. To be sure, analysts say President Barack Obama would veto anything Fed officials worry would hinder their abilities. But a slate of hostile congressional hearings questioning the Fed’s every move and movement of legislation would nonetheless force the Fed to play more defense. “It still alters the dynamic in some very important ways…and frightening ways from the Fed’s perspective,” said Karen Petrou of Federal Financial Analytics, which advises banks on policy matters. In a recent client note, Ms Petrou warned that a Republican takeover in the Senate could intensify congressional pushback against the Fed’s use of a new tool, known as overnight reverse repurchase agreements, to raise short-term interest rates when the time comes to tighten policy.