US Federal Reserve faces heightened scrutiny from Congress

The US Federal Reserve would be forced to explain its monetary policy decisions to Congress in unprecedented detail under a draft Republican bill that is the most serious attempt at financial reform since the Dodd-Frank act.

The draft bill due to be unveiled on Tuesday by the Republican-led Senate banking committee will tackle a host of issues but a chunk of it is devoted to imposing new transparency requirements on the Fed, according to a committee aide.

Under the legislation, the central bank's monetary policy committee would be required to send Congress a quarterly report explaining the information, analysis and policy rules it used to reach its decisions, the aide said.

The bill will add to political pressure on the Fed, which under a Republican-controlled Congress is facing more questions from lawmakers than it has since the financial crisis.

The legislation from the committee chaired by Senator Richard Shelby coincides with a separate bill from a bipartisan pair of senators to limit the central bank's ability to provide emergency loans to banks in a crisis.

The Shelby bill represents the Republican mainstream's attempt at financial reform but it will be revised in the coming days, possibly heavily, as Republicans and Democrats haggle over the details.

Mr Shelby has stressed his desire to find common ground with political opponents. The bill is unlikely to pass into law if he insists on provisions unpalatable to most Democrats and there is much animosity between the parties.

On the Fed, the bill stops short of previous Republican calls for the central bank to follow mechanical rules in setting monetary policy that have drawn on the work of economist John Taylor.

But it would subject US monetary policy making to extraordinary scrutiny - and provide a wealth of new fodder to economists and market analysts who specialise in deciphering the Fed's decisions and divining its intentions.

The bill would not alter an existing requirement for the Fed chair, currently Janet Yellen, to testify twice a year before congressional committees.

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