Authored by Simon White, Bloomberg macro strategist,
Born in the 90s and tested to destruction during the Great Financial Crisis, modern-day central bank independence is effectively over in all but name. Persistently large government deficits, central banks with trillions of dollars of sovereign debt and the political toxicity of elevated inflation make it impossible any longer for the Federal Reserve, ECB et al to set monetary policy fully independently from their government overseers.
Look no further than Wednesday to see monetary independence’s erosion and fiscal dominance’s re-ascendancy play out in microcosm. A rate-setting meeting would normally be top billing for the market, but the Fed is likely to be overshadowed by the Treasury’s refunding and auction-size announcement on the same day. The wind is changing.