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The U.S. House of Representatives approved legislation that would subject the Federal Reserve to an audit of monetary policy, including deliberations over changes to the benchmark interest rate.

The legislation, directing the Government Accountability Office to conduct the audit, is sponsored by Representative Ron Paul of Texas, a candidate for the Republican presidential nomination in 2008 and 2012 and author of “End the Fed.”

Chairman Ben S. Bernanke has repeatedly said the legislation would open up Fed policy making to political pressure and put the central bank’s independence at risk. The bill, which passed 327-98, needs to gain Senate approval and the signature of President Barack Obama before becoming law.

House passage of the measure “strikes me as really a last hurrah and send off from the Republican leadership to Ron Paul,” Sarah Binder, a senior fellow at the Brookings Institution, who researches the relationship between the Fed and Congress, said before the vote. “I doubt the Democratic Senate will act on the bill.”

The Republicans voted for the bill 238-1, with Representative Robert L. Turner of New York the only one opposed. Eighty-nine Democrats supported the legislation and 97 voted against it.

House passage will create “the perception that Congress is going to politicize the way interest rates are set and that will in itself have a destabilizing effect,” Representative Barney Frank of Massachusetts said yesterday during floor debate. He is the senior Democrat on the House Financial Services Committee.

‘Tireless Efforts’

“Ron Paul’s ‘audit the Fed’ bill is a reminder of his tireless efforts to promote sound money and a more transparent Federal Reserve,” Republican presidential candidate Mitt Romney said in a post on his campaign’s Twitter account.

Similar legislation, S. 202, was introduced in the Senate by Rand Paul, a Republican from Kentucky and Ron Paul’s son. The Senate bill, which has 21 Republican cosponsors, hasn’t been considered by the Senate Banking Committee.

“I call upon Democrat leadership to allow a vote in the Senate on this much-needed transparency bill,” Rand Paul said in a statement after the bill’s passage.

“The Senate will give us trouble,” Ron Paul said yesterday in an interview on C-SPAN, referring to the odds his bill will gain support in the Senate. Paul in his book says eliminating the Fed “is the one sure way to restore sanity to economic and political life in this country.”

Inner Workings

Paul’s bill passed with 274 cosponsors, including 45 Democrats and 229 Republicans. Supporters ranging from Jason Chaffetz, a Republican from Utah, and Peter DeFazio, a Democrat from Oregon, said during the House debate yesterday that the Fed needs to be transparent about the inner workings of its decision making over stimulus and financial stability.

Due to the central bank’s role in bailing out Wall Street banks during the financial crisis, “it’s past time to audit the Federal Reserve,” DeFazio said.

“The Federal Reserve balance sheet has exploded in recent years,” Chaffetz said. “The American people and this Congress deserve more openness and transparency and at the very least an audit.”

Bernanke reiterated his objections to the legislation in testimony last week to the House Financial Services Committee, describing to committee members his “nightmare scenario” following a Fed decision to raise interest rates.

“Somebody in this room would say, ‘I don’t like that decision, I want the GAO to go in and get all of the records,’” Bernanke said. Such a move would have a “chilling effect” on central bank decision making, he said at the July 18 hearing.

Little Changed

Stock markets were little changed today, with the Dow Jones Industrial Average rising 0.5 percent to 12,676.05 at 4:15 p.m. in New York. The yield on the 10-year Treasury note rose to 1.4 percent from 1.39 percent yesterday.

Paul’s audit bill passed the House in 2010 as part of an overhaul of U.S. financial regulation before being rejected by the Senate and a committee of lawmakers negotiating details of the Dodd-Frank Act. Bernanke opposed the legislation.

While rejecting Paul’s bill, Congress directed the GAO to audit the Fed’s emergency-aid programs during the financial crisis and review the system of directors of regional Fed banks for possible conflicts of interest. The Fed was also required to identify borrowers involved in its crisis-lending programs.

Paul announced on May 14 that he would no longer spend money to compete in the Republican presidential primaries. He plans to retire from the House at year’s end.

Referring to Paul’s bill on the House floor yesterday, Frank said, “nobody here thinks this will ever become law.”

(Updates with Romney comment on bill in seventh paragraph.)