The challenge is to rally his base without turning off big GOP donors. | John Shinkle/POLITICO Fed fight: Will Rand make a stand?

If you thought the debates over drones and surveillance were tailor-made for Kentucky Sen. Rand Paul, just wait until President Barack Obama picks a new Federal Reserve chair.

The upcoming debate over the confirmation of a successor for outgoing Fed Chairman Ben Bernanke is both a golden opportunity and a test for the libertarian-leaning senator, who has long criticized Bernanke’s policies and the institution of the Fed.


With Washington polarized over the top two contenders for the job — Fed Vice Chairwoman Janet Yellen and former Treasury Secretary Larry Summers — a potentially messy nomination battle is sure to give Paul and other tea party conservatives an opportunity to rail against the central bank.

( PHOTOS: Rand Paul’s career)

For Paul, the moment will also be a measure of whether he can continue to rally his grass-roots supporters, many of whom fueled his father Ron Paul’s Fed-bashing presidential campaigns, without turning off deep-pocketed GOP donors in the financial services community who don’t share the Paul legions’ near-obsession with the central bank.

Both the who and the when of Obama’s nomination are still unknown, but advisers to Paul say the first-term legislator is already planning to use the confirmation debate to press for greater oversight of the Fed, in part by promoting the Audit the Fed legislation that passed the House last Congress with bipartisan support.

The legislation, authored by the elder Paul and reintroduced by his son in the Senate this year, gives the Government Accountability Office power to conduct a full audit of the Fed. According to his aides, Paul has asked Senate Majority Leader Harry Reid and Minority Leader Mitch McConnell to bring the bill to the Senate floor during this Congress.

( PHOTOS: Ben Bernanke’s career)

At the same time, Paul is said to be keenly aware of the limits of what he can accomplish in the course of considering a nomination. He does not sit on the Senate Banking Committee, which will question the eventual nominee. And it would take bipartisan opposition to derail or significantly slow down a Fed selection — opposition that may or may not materialize.

Still, longtime critics of the Fed view the current political climate as an ideal moment to press for greater Fed transparency and to fire up a debate over the merits of its policies.

“Compared to before 2008, it’s fantastic. It’s unbelievable. It’s the most discussion there’s been in a 100 years,” Ron Paul said in an interview with POLITICO. “[In 2012,] even people like Romney and others started saying, ‘Oh yeah, we need to audit the Fed.’ ”

A Rand Paul spokesman said he was unavailable to be interviewed for this story, but the senator’s advisers said they see no political downside in promoting the Fed-auditing proposal, with one explaining: “It passed the House by an overwhelming margin in the last Congress and Rand feels strongly that it deserves a vote in the Senate.”

( Also on POLITICO: Congress starts looking into Bitcoin)

Being a poster child for anti-Fed, libertarian-leaning, activist-driven sentiments is not entirely risk-free for the younger Paul, who has been touring early GOP primary states this year in advance of an expected presidential campaign. Even this last week, Paul was wooing potential campaign donors in New York City and doing a tour of national TV programs, including “The Daily Show.”

Financial services executives say they’ll watch how Paul treats the eventual Fed nominee — that is, whether or not he launches a full assault by organizing a filibuster, for example — as evidence of the senator’s interest in practicing political moderation. Already working against the former Bowling Green ophthalmologist is a sense within the financial services world that Paul has little sympathy for their worldview or interest in hearing their concerns about how attacks on the Fed’s policies can rattle financial markets.

At the heart of these reservations about Paul is a suspicion that he is ultimately an ideological politician more driven by abstract debates than the implications of real-world policy. Paul prompted eye-rolling on both Wall Street and K Street when he recently offered two responses to a Bloomberg Businessweek reporter who asked for his ideal Fed nominees: Milton Friedman and Friedrich Hayek, neither of whom is alive.

Tony Fratto, a former White House and Treasury official in the George W. Bush administration, said those answers came across as “just plain weird” and were further proof that Paul is “not very serious.” Of the “audit the fed” movement more generally, Fratto added: “They have absolutely no clue what they’re talking about. Every time they speak they demonstrate their ignorance.”

Others in the world of banking and finance acknowledge that the Paul-driven crusade against the Fed represents serious public discomfort with the central bank — though that doesn’t mean they take Rand Paul seriously as a potential presidential candidate.

Ron Paul spent decades of his congressional career advocating for greater transparency at the Fed, if not total abolition of the central bank, and bankers recognize that there’s been an abrupt shift in momentum over the past few years. Ron Paul’s Audit the Fed bill started to gain real momentum only in the past few years as Paul neared retirement.

Independent Community Bankers of America President Cam Fine said he takes the legislation “seriously” because there is substance to the concern that the Fed has crossed the line from supervising monetary policy to fiscal policy.

“The ‘audit the Fed’ movement could get serious legs if there is a hiccup at the Fed or if there would be another financial collapse that would be perceived as having been within Fed’s power to prevent,” he said.

One Republican banking lobbyist, who asked to speak anonymously in order to be candid, said that many in the world of Wall Street see Paul as a “fringe guy” in part because “he takes this position on the Fed.”

“I don’t think he’s going to be our next president, but I don’t think it’s going to be because of his position on monetary policy or because of his position on large financial institutions,” the Republican said.

For Paul, the balancing act of charming his father’s fervent supporters while at the same time appealing to the establishment GOP — the kind of people who would not have considered voting for or donating to the Ron Paul — is not a challenge he faces exclusively in the areas of economic or monetary policy.

On a number of other national policy issues, Paul has staked out assertive stances that please big segments of the Republican base, but also prompt unease among party elites: His sharp criticism of Bush- and Obama-approved surveillance tactics are a prime example. So is his apparent willingness to support a government shutdown in order to try and defund the Affordable Care Act.

Iowa Republican Party Chairman A.J. Spiker, an enthusiastic Ron Paul supporter in 2012, said it’s exciting to have a senator with Paul-style views in the mix this time around. But there’s a limit, he said, to what Rand Paul’s fans expect from him in this bout.

“As a whole, Fed policy doesn’t really change, one chairman to the next. It’s all geared around printing and spending,” Spiker sighed. “[The nomination] is an opportunity for Rand and others to talk about monetary policy and how to really have prosperity in this country again."

Even Ron Paul, who predicted concern about the Fed would dominate national debate in the coming months, took a subdued line on the role he expects his son to play in a confirmation struggle. Ron Paul said he and Rand rarely have time to discuss policy and that he couldn’t guess “who’s going to speak about” the Fed in 2016.

But he did express confidence that his son will be able to take whatever incoming fire he faces from “demagogues [who] want to pile on.”

“If he’s unfairly attacked, I don’t like it and it gets me annoyed,” Ron Paul said. “But I was always reassured and I’m sure Rand will be — if you’re always doing the very best to tell the truth and reveal to the people what government is doing to us, not for us, he’ll be OK.”