WASHINGTON (Reuters) - The Federal Reserve will not “enable” bad fiscal policy by deliberately holding down borrowing costs in order to allow the U.S. government to go on a spending spree, a senior Federal Reserve official said on Thursday.
“That will end in tears. That is a bad policy and I‘m fairly certain that none of my colleagues on the FOMC (Federal Open Market Committee) are interested in going in that direction,” James Bullard, president of the St. Louis Federal Reserve, told CNBC television.
Critics of the U.S. central bank, including many top Republican politicians, complain the Fed’s $2.3 trillion bond purchase program has facilitated a massive expansion of government spending by President Barrack Obama, a Democrat.
Bullard, who is not a voting member of the policy-setting committee this year but will be a voter in 2013, said the central bank would not collaborate with the government over interest rates to facilitate heavy spending.
“You don’t want to get into what we would call the fiscal-dominant regime where the fiscal authority, or the Congress and the president, they are borrowing a lot of money and the Fed’s role is to keep the interest rates low.”
Anger among critics rose further when the Fed announced a third round of so-called quantitative easing, or QE3, earlier this month, taking bold steps to spur the economy just weeks before the November 6 presidential election.
Bullard, who has publicly stated that he would not have voted for that decision, said the Fed was focused exclusively on getting policy correct.
“We’re going to pursue monetary policy that is the right one for the nation, but it is not one that is trying to enable irresponsible fiscal policy,” he said. (Reporting by Alister Bull; Editing by James Dalgleish)