Federal Reserve will not keep interest rates low for government’s benefit

On Monday a member of the U.S central bank, Christopher Waller said,”The Federal Reserve won’t bend its interest rate or bond-buying policies to help finance the federal government’s rising deficit.”

”Because of the large fiscal deficit and rising federal debt, a narrative has emerged that the Federal Reserve will succumb to pressure to keep interest rates low to help service the debt and to maintain asset purchases to help finance the federal government ,” Waller said in remarks prepared for delivery at an online event organized by the Peterson Institute for International Economics.

”My goal today is to definitively put that narrative to rest. It is simply wrong . Monetary policy has  not and will not be conduct for these purpose.”

Policy, he said, will be set ”solely to fulfill” the fed’s mandated goals of achieving maximum employment and stable inflation.

Waller joined the fed’s board in December, after serving as executive vice president and research director at the St. Louis Fed, and he used them to wade into a potentially contentious issue.

The Fed’s board members and the central bank’s powerful chief are appointed by the president with the approval of the U.S. Senate but the governors’ long term and protection from partisan dismissals are meant to insulate the central bank from political pressures.

The Fed has pledged to keep its benchmark overnight interest rate near zero and continue its$ 120 billion in monthly bond purchases until the recovery from the economic fallout of the coronavirus pandemic is more complete.

Once the Fed’s goals for the economy are met, which means interest rates might start to rise, making U.S. debt service more expensive – and possibly leading to pressure on the Fed to expand its own holding of government debt to hold rates down.

”There are sizable costs if cooperation turns into fiscal control,” Waller said.