WASHINGTON, Aug 26 (Reuters) - U.S. Treasury Secretary Timothy Geithner said on Wednesday the Federal Reserve should further increase its transparency, but its monetary policy activities need to be shielded from political influence.
Geithner, answering questions voted on and posed by the Digg.com online community, did not endorse proposed legislation that would enable the Government Accountability Office to audit the Federal Reserve.
The question with the most votes from Digg, a social news website where users comment on submitted links and stories, was, "Why has the Federal Reserve bank never been audited?"
"You want to keep politics out of monetary policy," Geithner said, adding the Fed already has strong congressional oversight.
"The Fed is dramatically more transparent than it was, is subject to very comprehensive oversight and audits, but there are certain things about what the Fed does that again you need to make sure you preserve as independent of political influence, that is free of political influence, and that is a line that we don't want to cross," Geithner said.
The third most popular question, which was posed to Geithner in a video interview administered by a Wall Street Journal editor, was whether Geithner supported Rep. Ron Paul's bill to conduct a comprehensive audit of the Fed.
"Even the sponsor of that bill recognizes how important it is to us to have the Fed independent of politics," Geithner said. "And I'm sure that many people concerned about the Fed's role in the system will understand it would be problematic for the country if you let politicians come in and shape the conduct of monetary policy in the country."
The Fed has come under a sharp criticism from many lawmakers for actions taken under Chairman Ben Bernanke to pump trillions of dollars into the banking system and bail out failing institutions, all without funds appropriated by Congress.
The debate over the Fed's actions and future role is sure to intensify as a confirmation vote for Bernanke's second term draws near. He was renominated this week by President Barack Obama in a move widely viewed as aiming for market stability during a fragile economic recovery period.
Many lawmakers and bureaucrats are also concerned about the Obama administration's plans to give the Fed sweeping new powers over large financial institutions whose failure could threaten the economy.
Paul, a Texas Republican, has mounted a grass-roots campaign to get his audit bill considered for a vote in the Democrat-controlled Congress and claims 282 co-sponsors.
INNER WORKINGS
Geithner, asked whether he believed the Fed should become more transparent, said he did, and added that Bernanke had already done a lot to "open up the inner workings" of the U.S. central bank.
But he noted that financial markets were a key judge of the Fed's policy performance. "Every day, every hour people can judge for themselves whether the Fed is doing what it's supposed to do under the laws of the land."
Atlanta Federal Reserve President Dennis Lockhart also said on Wednesday that audits of Fed monetary decisions was a bad precedent.
"Even with absolutely good intentions, to have monetary policy audited after the fact, inevitably politicizes it, and I don't think that is in the interests of the country," Lockhart said after a speech in Chattanooga, Tennessee.
