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The two pillars that support the entire modern monetary system—that central banks have a clear mandate for price stability and that they are independent from governments—have crumbled over time.

For years, people have questioned the independence of central banks. However, from 2020 onward, this independence has virtually vanished. A monetary authority that does not consider monetary aggregates in its policy is effectively abandoning price stability as a target.

If we look at the Fed’s actions since 2020, we can see how it has prioritized government debt over price stability. Initially, the Fed accelerated the money supply to its highest level in decades, enabling significantly higher spending during a lockdown. Afterwards, the Fed maintained aggressive easing policies despite rising inflation, announcing that price increases were “transitory.” Four years later, government spending has risen by $2 trillion above 2019 levels, and inflation is persistent despite the U.S.’s record energy production and competitive advantages.

The Fed has consistently favored irresponsible government spending and indebtedness. Its “higher for longer” stance on rates disappeared only eighteen months after Powell announced it. In the middle of an election year, with government spending soaring to $6.7 trillion and debt reaching record levels, the Fed panicked and delayed its balance sheet normalization path, followed by a massive rate cut, despite persistent inflationary pressures. The sole justification for this change was to conceal the government’s increasing fiscal irresponsibility. It is not a surprise to see that some Federal Reserve board members strongly contested these decisions.

Prioritizing the government’s financial needs over inflation control is a dangerous path. In periods of policy easing, government size in the economy rises rapidly. During periods of economic contraction, families and businesses bear the entire burden of rate hikes, but as government spending continues to increase, the size of government in the economy continues to rise.

The Federal Reserve maintained a higher level of independence compared to the ECB or the Bank of Japan, but it cannot continue to be seen as a conduit of rising public sector imbalances.

We must remember that there was no need to implement the policy mistakes of 2020-2024. Massive quantitative easing in 2020 created the inflationary crisis we have lived through since. Cumulative inflation since 2021 stands at 24.7%. This is hardly “price stability.” By ignoring monetary aggregates, the Fed made a string of mistakes that have led the United States to a debt crisis and an inflation disaster. Printing, saying that inflation was transitory and continuing with easing policies despite all warning signs, only to hike rates too fast and destroy families and small businesses but keeping enormous liquidity injections to bail out regional banks and government debt issuances.

The Fed’s policy mistakes since 2020 suggest a single mandate: to maintain the government debt bubble at all costs.

The reason why a central bank must be independent from government and has price stability as its mandate is because governments will always increase their imbalances if they can use the monetary system. Inflationism is a policy. The government slowly takes control of the entire economy and swallows the productive capacity of the country, issuing a promissory note—its currency—that constantly loses purchasing power.

By prioritising government debt management over inflation control, central banks have compromised their independence and credibility. The tendency to blame inflation on various factors rather than acknowledging the role of government spending and money supply growth is alarming.

During the January–March 2025 quarter, the Treasury expects to borrow $823 billion in privately held net marketable debt, according to their own estimates. The Congressional Budget Office (CBO) projects that the annual budget deficit will rise from $1.7 trillion in 2026 to $2.5 trillion in 2035.

Implementing a decisive reduction in government spending is the only way to prevent the destruction of the US dollar and a debt crisis. No revenue measure will halt the damage.

The current self-perpetuating cycle where government spending drives monetary policy, which in turn enables more government spending, is destructive in every aspect. It puts the US dollar’s reserve status in danger, and it accelerates a debt crisis as demand for Treasuries declines globally.

The Fed must stop inflating the government debt bubble over their mandated responsibility to ensure price stability. Failing to do it will mean more inflation, lower growth, higher debt, and a weaker economy.

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