When Politics Takes on Debt, Monetary Policy Joins the Conversation
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Interest Rates, Debt, Currency: How America’s Policies Are Reshaping the Investment Landscape
Recently, we have received numerous questions about the United States. Most focused on interest-rate policy, many on fiscal plans, and occasionally on the dollar.
Fundamentally, fiscal and monetary policy are two sides of the same coin. One determines how much the government wants to spend – the other determines what it costs. And right now, the U.S. is planning a lot: billions for infrastructure, defense, and tax cuts.
Such initiatives require low financing costs. If interest rates remain high, political ambition quickly turns into fiscal risk. If central banks cut rates early, the very same measures can become an economic catalyst. But inflation sets limits: what is politically desirable is often monetarily untenable – and vice versa.
This is precisely where the U.S. stands today. The U.S. government is pursuing expansive programs that are only affordable if interest rates cooperate. In doing so, fiscal policy indirectly calls for an easing of monetary policy – regardless of whether inflation is firmly anchored at target yet.
This constellation affects not only the interest-rate landscape but also something that came up repeatedly in conversations:
- Over the course of the year, the dollar has lost strength as interest-rate advantages narrow and trade-policy risks rise.
- In the medium term, stronger U.S. growth could support it.
- But in the long term, fiscal reality becomes harder to ignore. The higher the debt burden, the greater the subsequent pressure to cut rates aggressively – and that is precisely what makes the dollar vulnerable.
What is often mentioned only in passing is, in truth, the key:
The dollar is not just a byproduct of these policies – it is the yardstick against which they must ultimately be measured.
Fiscal policy determines spending. Monetary policy determines financing costs.
And at the end of the day, everything is settled in dollars.
If you have further questions or topics you would like us to address, you can reach us at hey@ethenea.com – your direct line to Portfolio Management.
Please contact us at any time if you have questions or suggestions.
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