When Inflation Gets Political

Inflation headlines may have cooled, but politics is heating up. Fiscal policy was once a background player. But not anymore. It is now front and center as large deficits are becoming key market variables.

The risk here is the return of fiscal populism and what that means for long-term inflation control. And the implications on the Federal Reserve’s independence.

September 2025 inflation: up 0.3% — US Bureau of Labor Statistics, October 2025

Year-over-year inflation as of September 2025: increase of 3.0% — US Bureau of Labor Statistics, October 2025

Year-over-year inflation high: 9.1% in June 2022, showing price growth is clearly easing.  — US Bureau of Labor Statistics, October 2025

Federal Reserve’s long-term target: 2% per year — Federal Reserve, November 2025

Did you catch the news?

Recently, Trump’s Treasury Secretary let slip:

“We’re going to monetize the most valuable asset of the United States.”

What did he mean, exactly?

As you’ll see, Trump could soon unleash a massive new boom in America. One that could dwarf the rise of crypto and NVIDIA, combined.

Former Presidential Advisor, Jim Rickards says:

“We’re talking about a state asset that’s so large – if you divide the figure by the number of households in America, it’d be enough to make every family millionaires.

And it will be unleashed starting as early as this summmer.”

For the full story, click here.

Just because inflation isn’t in the top news story doesn’t mean it’s gone away. Now, markets are beginning to price in the idea that policy, not prices, could keep inflation from falling further.

There are members from both major US political parties who are promoting large-scale or status quo spending agendas. This aligns with the idea of fiscal populism. The strategy focuses on short-term results through tax cuts and higher government spending. The cost? Long-term sustainability.

According to Axios’ Neil Irwin, America’s increasing fiscal deficit is “triggered by the US government spending far more than it takes in as revenue, and there's no signs that will change in the foreseeable future.” 

Policy implications: What does all this mean for the Federal Reserve’s monetary policy? The US central bank’s ability to control inflation depends partly on fiscal restraint. As International Monetary Fund (IMF) economist Francesca Caselli writes, “tighter fiscal policy would allow central banks to increase interest rates by less than they otherwise would, which would help contain borrowing costs for governments and keep financial vulnerabilities in check.” In other words, when deficits stay high, monetary policy must work harder. 

Investor implications: As of mid-November, the yield on the 10-year Treasury note hovers around 4.1%, reflecting investor concerns over long-term inflation and heavy debt issuance. According to Citadel Securities’ Nohshad Shah, it may stay that way for the foreseeable future. He claims “inflation is at-risk of rising… In this environment, cyclical equities should outperform defensives and going into 2026 as nominal growth rises and fiscal spending remains elevated, I would expect more tailwinds to the debasement theme, which should be bullish for commodities.”

Upcoming policy meetings: In March 2026, the Federal Reserve will update its Summary of Economic Projections. This report should be revealing as it will outline how policymakers weigh lower inflation against ongoing fiscal expansion. In the report and in upcoming correspondence, watch for any language commenting on “policy coordination” from either Treasury officials or Federal Reserve Chairman Jerome Powell. The danger? Markets are likely to interpret it as potential political pressure on the US central bank, an entity that is designed to operate independently of politics.

What to watch for: Aligned communication between the Federal Reserve and the US Department of the Treasury can be viewed as more than mere efficiency. It can hint at a coordinated strategy. And that strategy may constrain the central bank’s ability to act solely on its dual mandate of maximizing employment and maintaining price stability. 

Inflation may be easing, but the politics behind it are not. Fiscal expansion could challenge the Federal Reserve’s independence and test its ability to keep inflation anchored.

For investors, the next market cycle may hinge less on interest rates and more on whether Washington can resist its own spending impulses.

— Lauren Brown
Editor, American Ledger