Waller says Fed isn’t keeping rates low to increase deficit

The Federal Reserve is not keeping monetary policy easy so the government can continue to run up debt and deficits, Fed Governor Christopher Waller said on Monday.

Defending the Fed’s independence from the tax authorities in Congress, Waller rejected the idea that the central bank keeps borrowing costs low to help with debt servicing, and does not nor to asset purchases to finance the indebted federal government.

“My goal today is to put an end to this story for good. This is simply not true, ”Waller said in prepared remarks at the Peterson Institute for International Economics. “Monetary policy has not and will not be conducted for these purposes.”

As part of its response to the Covid crisis, the Fed cut short-term borrowing rates to near zero and bought at least $ 80 billion in treasury bills each month, as well as $ 40 billion in mortgage backed securities.

At the same time, total public debt has climbed $ 4.5 trillion, or nearly 20%, since early March 2020, and the deficit for fiscal 2020 was over $ 3.1 trillion. The Congressional Budget Office has forecast the fiscal 2021 deficit to be $ 2.3 trillion, and that does not include the nearly $ 1.9 trillion stimulus package approved recently.

Critics of the Fed say the central bank has been tasked with keeping rates low so the government can continue to borrow. Although Fed officials have widely applauded the aggressive fiscal policy, Waller said monetary policy is not about keeping borrowing costs low in mind.

He further stressed the importance of the Fed’s independence from Congress so that monetary policy is not designed with political goals in mind.

“There are considerable costs if the cooperation turns into a tax audit,” Waller said.

“Congress was fully aware of the potential misuse of monetary policy for political reasons, and it deliberately created the Federal Reserve as an independent central bank,” he added. “The Federal Reserve’s design features minimize political influence over monetary policy while maintaining accountability to Congress and the electorate for its political actions.”

Waller is the newest addition to the board of governors, getting confirmation in December after being appointed by former President Donald Trump. These are his first public remarks.