Fiscal Policy
Government spending and taxation decisions that expand or contract the economy, independent of the central bank's monetary levers.
Fiscal policy is how a government uses its budget — spending levels, tax rates, and deficits — to influence economic activity. Expansionary fiscal policy (more spending or tax cuts) stimulates demand; contractionary policy (cuts or tax hikes) cools it.
Fiscal and monetary policy can work in tandem or at cross-purposes. Heavy deficit spending while a central bank is tightening creates conflicting signals. Large fiscal stimulus can complicate a central bank's inflation-fighting mandate, keeping rates higher for longer — a dynamic that weighs on long-duration bonds.