Fiscal Dominance
When a government's debt is so large that the central bank feels pressured to keep rates low to keep it…
In plain English
When a government's debt is so large that the central bank feels pressured to keep rates low to keep it affordable, even if inflation is high.
Normally the central bank sets rates to control inflation. Under fiscal dominance, budget needs call the tune: raising rates would make government interest bills explode, so the central bank holds back or helps fund the deficit.
It is a worry for currencies, because markets fear inflation will be tolerated. Critics have raised the risk for several big economies with heavy debts.
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