Fiscal Dominance

An excerpt from our Fourth Quarter 2025 Investment Brief: 

The U.S. faces unsustainable debt dynamics characterized by mounting debt levels and rapidly increasing debt service costs. At the same time, the Fed’s independence is under attack and there is speculation that the new Fed Chair might subordinate monetary policy to fiscal or political considerations. This quarter’s special topic examines the risks of eroding central bank independence and illustrates how monetary policy operated during a previous period of fiscal dominance.