“Fiscal dominance” refers to the state’s expenditures (fiscal policy) dominating monetary policy. Instead of the legislature (Congress in the US) controlling government expenditures while the central bank (the Fed) tries to control inflation, the latter helps finance expenditures and Congress obtains more leeway to run deficits. Fiscal dominance is the opposite of central bank independence. The idea is making a comeback (see Ian Smith, “Investors Warn of ‘New Era of Fiscal Dominance’ in Global Markets,” Financial Times, August 20, 2025; see also Greg Ip, “Get Ready for the End of Fed Independence,” Wall Street Journal, August 26, 2025).

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