This tends to be overlooked in current policy discussions that rightly stress the importance of sound fiscal policies. Without adequate safeguards against excessive public sector borrowing, monetary policy may be facing issues of fiscal dominance. In other words, unsustainable levels of debt may affect monetary policy decisions. But sustainable levels of private debt are at least equally important.
2  BIS central bankers’ speeches  Monetary policy With unemployment well above normal levels and inflation subdued, fostering our congressionally mandated objectives of maximum employment and price stability requires a highly accommodative monetary policy. Normally, the Committee would provide policy accommodation by reducing its target for the federal funds rate, thus putting downward pressure on interest rates generally.