By Alister Bull and Ann Saphir
SAN DIEGO Jan 4 The world's central banks have
sacrificed some of their cherished independence as a result of
fiscal-like policies undertaken to repair the damage of the
global financial crisis, a senior Federal Reserve official said
on Friday, calling the ECB one of the worst offenders.
James Bullard, president of the St. Louis Federal Reserve
Bank, described the European Central Bank's bond-buying program
as a "fiscalization" of monetary policy, and said it had
weakened the ECB's response to the European recession.
"Why? By nearly all accounts, the monetary policy process
has been bogged down by political wrangling over the OMT and
other programs," Bullard said at the annual meeting of the
American Economic Association.
The OMT, or outright monetary transaction program, is the
ECB's bond-buying program that allows for potentially unlimited
interventions for ailing states.
The Fed has also been accused of straying into fiscal policy
territory, which is supposed to be the exclusive preserve of
elected politicians in the United States, via a massive bond-
buying program that has ballooned the size of its balance sheet.
John Taylor, author of the influential Taylor Rule of
monetary policy governing the relationship between economic
slack and inflation, has been one of the most outspoken of these
critics and sat on the panel with Bullard.
Other panelists include Fed historian Allan Meltzer, another
fierce critic of the recent actions of the U.S. central bank, as
well as former Fed Vice Chairmen Donald Kohn and Alan Blinder.
Bullard said abandoning a rules-based approach to monetary
policy, and getting sucked into actions outside their remit, was
leading to the "creeping politicization" of central banking
globally -- something that would deliver disappointing economic
"The macroeconomic performance of nations with politicized
central banks has historically been quite poor," said Bullard, a
voting member of the Fed's policy-setting committee this year.
Hawks fear the unprecedented efforts of the U.S. central
bank to spur hiring and economic growth will eventually lead to
higher inflation that will be extremely painful to curb.
The Fed last month voted to maintain mortgage-backed and
Treasury bond purchases at an $85 billion monthly pace, and to
keep expanding its balance sheet through this policy of
so-called quantitative easing until it sees a substantial
improvement in the outlook for the labor market.
It also committed to hold interest rates near zero until
unemployment declined to 6.5 percent, provided inflation
remained beneath 2.5 percent. The Labor Department reported that
U.S. unemployment remained at 7.8 percent in December.