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.
Although Paul is not on the Banking Committee, half of the Republicans on the panel co-sponsored his bill.
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.