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The increasing intertwining of monetary and fiscal policy in the US is leading to concerns about fiscal dominance, where the Federal Reserve and the Treasury coordinate actions, potentially undermining the independence of the monetary authority. This trend has been highlighted by the Fed's Treasury purchases despite limited economic stimulus desires and efforts to balance inflation fighting with maintaining liquidity.
This started bottoming back when US banks ran into issues and were bailed out. Fed and Treasury want to fight inflation but don’t want depositors to lose any money either, and so liquidity remained available even as inflation remained above-target. #FiscalDominance https://t.co/ccC92oQbzt
If there's a date that marks when the U.S. began entering fiscal dominance, I would argue that it's when the Fed resumed outright Treasury purchases in October 2019 despite having little desire to do economic stimulus. https://t.co/SlJWvesmtu
"Monetary and fiscal policy in the US is becoming more intertwined as the Federal Reserve and the Treasury — implicitly or otherwise — increasingly coordinate their actions. That’s a structural negative for US Treasuries..." @LondonSW @markets