Must protect independence of Fed: Bullard

PHILADELPHIA (Reuters) - Public anger over the U.S. financial crisis and subsequent government bailouts could cause big problems if it escalated into a political challenge to the independence of the U.S. Federal Reserve, St. Louis Fed President James Bullard said on Tuesday.

"If that leads to some sort of erosion, or even the appearance of an erosion, of the independence of the Fed, I think that could be very counterproductive in this environment," he said after giving a talk about monetary policy to a Global Interdependence Center event.

"We've got very large fiscal deficits. We've got the appearance...that the Fed is monetizing the deficit, pushing up yields. Anything that is going to erode the independence of the Fed is going to feed that expectation and drive yields higher.

"So I think we are really in a delicate situation here as regards the independence of the Fed, and that is an important consideration going forward," he said in response to an audience question.

(Reporting by Alister Bull, editing by Leslie Adler)