For the better part of the past few decades, the spectre of “fiscal dominance” has remained largely confined to the ivory towers of academia—at least in the case of advanced economies. Almost quaintly, it’s long been assumed that central banks steer the ship regarding short-term macroeconomic policy. Independent, technocratic, and above the fray of politics, they tame inflation while governments obediently trim their fiscal sails in the name of stability.

This faith in monetary dominance—the notion that monetary policy calls the macro shots—has kept inflation subdued and credibility intact. No wonder it became gospel. But now, in what feels like an economic remake of Game of Thrones, the United States looks poised to cast it aside.

The conditions for a textbook case of fiscal dominance—when a central bank’s ability to manage inflation is overridden by a government’s addiction to deficits and debt—fall neatly into place. And the script is shaping up to be anything but boring.

The first assault on monetary dominance arrives when fighting inflation demands higher interest rates and, awkwardly, rising unemployment. Normally, the Fed would weigh those risks and opt for price stability—an unlovable but necessary stance. After all, someone has to be the adult in the room.

But what happens when the president, armed with tariff-induced supply shocks and a booming political mandate, turbocharges inflation and unemployment at the same time? Welcome to 2025.

Is this inflation merely “transitory” (that old favourite), or should we bring out the big guns? Unfortunately, long-term inflation expectations—now gently drifting upward—suggest that waiting it out might not be wise. Cue the dreaded “S” word: stagflation. For a central bank, it’s the equivalent of juggling chainsaws blindfolded.

The second threat comes not from inflation but from arithmetic. When public debt is so colossal that it starts dictating central bank policy, you know things have gone south. If rate hikes trigger panic over fiscal sustainability—or worse, a financial crisis—the Fed becomes a prisoner of its own toolkit. Interest rate policy is no longer about inflation; it’s about keeping the Treasury solvent. And that’s when the Fed might choose to tolerate higher inflation to reduce the actual value of the debt—essentially defaulting, quietly and politely.

Let’s add some numbers to this opera. According to the Congressional Budget Office, the US debt-to-GDP ratio will hit 100% this year, 118% by 2035, and 136% by 2045. And that’s without extending Trump’s 2017 tax cuts—something Washington seems hell-bent on doing, to the tune of another $5 trillion over a decade.

Then there’s the third twist in our tale: Donald Trump may well believe central bank independence is a charming but outdated idea. During his second term, he’s made a sport of exerting control over ostensibly independent agencies. The Fed could be next on his list.

There’s already speculation about rewriting the Federal Reserve Act, reshaping its mandate, or simply stacking the board with loyalists. Powell’s term ends in 2026, and though he’s said he won’t resign if asked, Trump has never been shy about creative interpretations of constitutional norms. Imagine a drawn-out legal battle over who controls interest rates—it would be so very 2025.

Central bank independence is, after all, a constitutional anomaly. We’ve handed enormous power to an unelected, semi-accountable institution on the promise it would behave. And to be fair, it largely has. But stubborn inflation, runaway debt, and a president with a vendetta against the technocracy are testing that trust like never before.

If we do slide into fiscal dominance, the Fed may become a glorified debt manager with a side hustle in inflation toleration. In that case, the real question isn’t whether monetary policy survives intact—it’s whether we’ll recognise it at all.

As storms go, this one has all the ingredients: tariffs masquerading as strategy, deficits dressed up as stimulus, and a central bank cornered by its own success. One thing’s sure: independence is no longer guaranteed—it’s up for grabs.