James Lavish: Fiscal dominance explained for U.S. taxpayers - Traders Union
James Lavish: Fiscal dominance explained for U.S. taxpayers - Traders Union
Source: Traders Union
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DW NOTE
Fiscal dominance is when the central bank loses the ability to control inflation because the government's debt service costs force it to keep rates suppressed. The U.S. paid $1.13 trillion in net interest in fiscal 2024 at an average rate below 3%. At today's 10-year yield the annual cost would exceed $2 trillion — more than defence and Medicare combined. The Fed raised to 3.75-4% in September while the deficit hit $2 trillion and energy prices spiked 60%. That's not monetary independence, that's a central bank trapped by the Treasury's borrowing needs.