* Unconventional central bank has risked
* Says ECB's bond purchase program has hobbled its actions
By Alister Bull and Ann Saphir
SAN DIEGO, Jan 4 The world's top 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.
The U.S. central bank was slammed by Republicans during last
year's presidential campaign for pursuing policies which they
claimed as favoring the re-election of President Barack Obama, a
Democrat, who was awarded a second term by voters on Nov. 6.
Former Fed Vice chairman Donald Kohn, a fellow panelist with
Bullard, said the spectacle of Republican presidential
candidates competing over who would be the "fastest to fire"
current Fed Chairman Ben Bernanke if they won the White House
had not been encouraging.
"I worry about the Fed in an era of polarized and extreme
political discourse," he told the packed audience of economists,
referencing congressional efforts to subject the central bank's
monetary policy decisions to external audit.
Other panelists included John Taylor, author of the
influential Taylor Rule of monetary policy governing the
relationship between economic slack and inflation, Fed historian
Allan Meltzer, and former Fed vice chair Alan Blinder.
"Should we be worried about the Federal Reserve's
independence in the aftermath of the financial crisis? My answer
is yes," T aylor said.
He argued that the Fed had voluntarily given up some of its
political independence, rather than as a result of direct
congressional action, and suggested this could be best restored
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.