Thinking through the Fed's "third mandate"

The Fed’s ‘third mandate’ – promoting “moderate long-term interest rates” – is gaining attention, raising the risk of mandate creep toward fiscal dominance. We outline three phases: an initial dovish tilt, markets pricing higher inflation tolerance, and eventual yield-curve control with financial repression. The latter would mean subordination of monetary policy to fiscal needs, risking unanchored inflation expectations, dollar weakness, and asset-price dislocations.

Authors

Luke Bartholomew

Deputy Chief Economist

Paul Diggle

Chief Economist