As the Senate Banking Committee prepares for a confirmation hearing Thursday, Sen. Rand Paul (R-Ky.) plans to delay a vote on Yellen's nomination by the full Senate unless Democratic leaders bring up his bill to require more expansive audits of the Fed.
The so-called Audit the Fed movement was championed by his father, Ron Paul, the former Texas congressman and Republican presidential candidate, and has become a rallying cry for those who want to reduce the central bank's power — or dismantle it altogether.
The elder Paul pushed similar legislation through the House in 2012 with significant Democratic support amid bipartisan concern that Fed officials were more concerned with helping big banks than average Americans.
Fed critics now hope that the threat to delay Yellen's confirmation will help them win a vote on the audit legislation, though they admit they have little chance of derailing it.
"I say vote no on a new Fed chairman without a vote on my new Audit the Fed bill," Rand Paul said in an online video for Campaign for Liberty, a "free market" advocacy group chaired by his father.
Since 1978, the Government Accountability Office has been allowed to audit Fed regulatory actions and other issues unrelated to monetary policy. But the law specifically prohibits GAO audits of "deliberations, decisions or actions on monetary policy matters."
Fed officials said expanded audits would jeopardize the central bank's independence and limit its effectiveness by opening it to more political pressure.
In her role as the Fed's vice chair since 2010, Yellen helped Chairman Ben S. Bernanke craft the central bank's more open communication policy, and she's expected to be questioned Thursday on expanding the public's view of the Fed's internal workings.
Yellen supporters are pushing to get her formally installed before Bernanke steps down Jan. 31.
Holding up Yellen's nomination is fair game given the outsized role the Fed has been playing in the economy, said Ron Paul, who opposed the central bank's aggressive response to the financial crisis and Great Recession. He wrote a 2009 book titled "End the Fed."
"Nobody at the Fed is going to allow us to know what's going on. We need an Edward Snowden to let us know what goes on behind the scenes," Paul said, referring to the fugitive National Security Agency leaker. "Any effort we have to warn people about the danger of the Fed's policy, I think we're obligated to take advantage of."
The legislation would allow the GAO, Congress' nonpartisan watchdog agency, to delve deeply into monetary policy decisions and actions, such as lending to banks through the Fed's discount window and other open market operations.
Bernanke and other Fed officials have insisted that the central bank already faces routine audits and have strongly opposed expanding their scope.
"The nightmare scenario I have is one in which some future Fed chairman would decide to, say, raise the federal funds rate … and 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, get all of the transcripts, get all of the preparatory materials and give us an independent opinion whether or not that was the right decision," Bernanke told House lawmakers last year.
Many Fed experts agreed with him.
Allan Meltzer, a Fed historian at Carnegie Mellon University, said Congress should focus on the effect of the Fed's policies, not how officials made the decisions.
"I don't see why the Congress should care if the Fed gets it right if it does it by a Ouija board or looking at the inside of pumpkins," he said. "What it should be concerned about is outcomes."
The Fed voluntarily makes public transcripts of meetings and other detailed monetary policy information, but with a five-year lag.
John Makin, a resident scholar at the conservative-leaning American Enterprise Institute think tank, said the Fed has "tried to be substantially more transparent" in recent years. Bernanke began holding the Fed's first quarterly news conferences to explain monetary policy decisions.
"There are many politicians who find it resonant … to kind of go on a fishing expedition about the Fed," Makin said. "I don't think it's going to improve monetary policy. It's probably going to make it worse."
Bernanke put Yellen in charge of a special communications subcommittee that led to more detailed "forward guidance" about the monetary policy objectives of the policymaking Federal Open Market Committee.
Yellen has described the recent changes in Fed communications as a "revolution" from the days when the central bank didn't even announce its monetary policy decisions. But critics believe more needs to be done.
"I think the Fed is an enormously powerful agency. It is a secretive agency, and the more light we can shed on it would be a good thing for the American people," said Sen. Bernie Sanders (I-Vt.), an outspoken liberal Fed critic.
He worked with conservative Ron Paul in 2010 to get a provision in the Dodd-Frank financial reform law that allowed for a one-time audit of discount window lending and other actions taken during the 2008 crisis.
The audit, released in 2011, detailed the extent of Fed emergency lending and what financial institutions received the loans. The provision also allowed future audits of such actions taken under the Fed's emergency authority.
Sanders supports expanded Fed audits. But he doesn't agree with Rand Paul's plan to delay a confirmation vote on Yellen to get a vote on the legislation.
"I think the American people are getting tired of this kind of obstruction," said Sanders, who opposed Bernanke's renomination in 2010 and is not sure he will vote to confirm Yellen.
Paul said Yellen's confirmation gives him a chance to draw attention to his legislation, which has not received a vote in three years.
"As the Senate debates the nomination of the next head of the Federal Reserve, there is no more appropriate time to provide Congress with additional oversight and scrutiny of the actions and decisions of the central bank," Paul wrote in a letter last month to Senate Majority Leader Harry Reid (D-Nev).
The bill has 27 co-sponsors, all Republicans, and he thinks it could get a simple majority. But as Paul knows from filibustering other legislation, he would probably need 60 votes to pass his bill, and he has said he does not think he could clear that hurdle.
His father said that it would be politically unpopular for senators to vote against the legislation and that he hopes the need to install a new chairperson will move the issue forward.
"The Yellen nomination is an opportunity to get the message out about what's not known about what the Fed does," Ron Paul said.