Fiscal Interaction
Is fiscal policy reinforcing or counteracting monetary policy?
The Fiscal Interaction lens assesses whether government taxing, spending, and borrowing is working with or against Federal Reserve policy. When fiscal and monetary policy are aligned (both tightening or both loosening), their combined effect is amplified. When they conflict — expansive fiscal spending during monetary tightening, or fiscal austerity during monetary easing — the net effect on the economy becomes uncertain and the Fed's ability to manage demand is compromised. This lens also tracks Treasury issuance dynamics, which directly affect long-term interest rates regardless of Fed policy.
Signals Produced
Fiscal-Monetary Alignment
FISCAL_MONETARY_ALIGNMENT
Fiscal Impulse
FISCAL_IMPULSE
Analysis Stages
Fiscal Stance Assessment
Is the overall fiscal position stimulative, neutral, or contractionary? How is it changing?
Fiscal-Monetary Interaction
Are fiscal and monetary policies pulling in the same direction or opposite?
Issuance & Crowding Dynamics
Is Treasury supply affecting long-term rates independent of Fed policy?
Fiscal Dominance Risk
Could fiscal deficits constrain the Fed's ability to set monetary policy?
Required Sources
Must Have
Deficit projections, fiscal multiplier estimates, mandatory vs discretionary breakdown
cbo.gov
Issuance plans (bills, notes, bonds), auction demand metrics
treasury.gov
References to fiscal policy, government spending effects
federalreserve.gov
Enhances Analysis
Revenue/outlays/deficit monthly actuals vs prior year
fiscaldata.treasury.gov
Spending bills, tax changes, stimulus/austerity measures
congress.gov
Industrial policy disbursement timing and amounts
Various agency reports
Contribution of fiscal policy to GDP growth
Brookings
Bid-to-cover ratios, tail, indirect bidding
treasury.gov
ACM or KW models for term premium in Treasury yields
NY Fed, FRED
When This Lens Applies
Always applicable for US Monetary Policy theme. Fiscal-monetary interaction determines net policy stance.
Heightened Priority Triggers
- Major spending/tax legislation enacted or proposed
- Deficit exceeds 5% of GDP outside of recession
- Treasury auction demand deteriorates (bid-to-cover drops, tails widen)
- Term premium rises >50bp in a quarter
- Government shutdown/debt ceiling risk