On My Radar: Fiscal Dominance and the Not QE Question
December 12, 2025
By Steve Blumenthal
“It’s only QE if they buy duration. Otherwise, it’s just sparkling money-printing.”
— Lyn Alden, @LynAldenContact
What is fiscal dominance? It’s a term you will hear increasingly about, and an important concept. I’ll try to explain it in lay terms today.
Imagine the economy has two big bosses who are supposed to work as a team but often fight:
The Federal Reserve (the central bank) considers itself the responsible adult. Its job is to keep inflation low and the economy stable by controlling interest rates and the money supply.
The government (Congress + President) – the one that spends money on Social Security, Medicare, defense, tax cuts, student-loan forgiveness, new highways, etc., and borrows trillions when it spends more than it collects in taxes.
Normally, the Fed is supposed to be independent. If the government spends too much and borrows too much, the Fed can say:
“Okay, that’s inflationary. I’m going to raise interest rates and maybe even shrink my balance sheet to cool things down.”
That keeps the government somewhat honest, because higher interest rates make all that borrowing painfully expensive. Fiscal dominance is when the tables flip, and the government becomes the real boss. Here’s how it happens in plain English:
The government has run up so much debt (and keeps adding more every year) that interest payments are now huge.
If the Fed tries to raise rates or keep them high to fight inflation, the government’s interest bill explodes → budget chaos → possible default scare → political meltdown.
So the Fed feels forced to keep interest rates lower than it otherwise would, and sometimes even print money (QE, buying Treasuries, etc.) to help the government finance its deficits on the cheap.
In short:
Fiscal dominance = “The government’s giant borrowing needs are now calling the shots, and the Fed has to play along or the whole system blows up.”
Real-World Example Right Now (2025):
U.S. debt is over $38.4 trillion and rising fast.
Annual interest payments exceed $1 trillion (larger than the defense budget).
The government presents no realistic plan to reduce spending or raise sufficient taxes to balance the budget.
So when money markets get tight (like recently), the Fed steps in with measures such as “$40 billion a month in T-bill purchases” — not because the economy is collapsing, but partly to ensure the Treasury can keep borrowing smoothly without interest rates spiking.
That’s fiscal dominance in action: the Fed says “this is just technical plumbing,” but everyone knows part of the reason they’re doing it is that the government can’t afford much higher interest rates.
Bottom Line: Fiscal dominance is when debt and deficits get so big that the central bank loses its ability to say “no” and instead becomes the government’s helper, keeping rates low and liquidity flowing so the borrowing party can continue.
It’s why people like Lyn Alden say “nothing stops this train.” This past week, the Fed sprinkled more liquidity into the system in order to keep the plumbing from breaking—another sign along the road towards a future restructuring. QE occurs when central banks begin buying longer-duration Treasury notes and bonds. I think that day is coming.
So grab your coffee, no sugar needed. The Fed is providing plenty. Today, let’s go deeper, using the Fed’s actions this week as our guide. Also, good friend Barry Habib did a post-Fed meeting update, which he titled “Surprise Shawty.” It’s insightful and fun. Barry graciously allowed me to share the short video with you. You’ll find the link below.
On My Radar: Fiscal Dominance and the Not QE
Not QE?
Barry Habib on Fed Cut - Surprise Shawty!
Trade Signals: December 11, 2025
Personal Note: SoFi Stadium, My Birds, and West Palm Beach
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Not QE?
On December 10, 2025, the Federal Open Market Committee (FOMC) voted 9-3 to cut the federal funds rate by 25 basis points, lowering the target range to 3.50%-3.75%. This marked the third consecutive rate cut in 2025, following reductions in September and October, amid a cooling labor market and somewhat elevated inflation (with core PCE projected lower than prior estimates but still above the 2% target). Fed Chair Jerome Powell held a press conference immediately after the announcement, where he described the decision as a "close call" and emphasized a data-dependent approach, signaling potential pauses or further adjustments based on incoming economic data like employment reports and inflation readings.
The surprise: In addition to the rate cut, the FOMC announced it would resume balance sheet expansion through targeted purchases of shorter-term Treasury securities to maintain "ample" reserve levels in the banking system. Specifically, the Federal Reserve will begin buying up to $40 billion per month in Treasury bills (T-bills) starting December 12, 2025 (the Friday following the meeting). Powell signaled that these purchases are expected to remain elevated for a few months—particularly to offset anticipated increases in non-reserve liabilities, which peak around April 2026, before tapering to around $20-25 billion per month, in line with seasonal patterns.
During the press conference, Powell addressed the move directly, stressing its technical, non-stimulatory nature and explicitly distancing it from broader monetary easing, such as quantitative easing (QE).
QE? Let’s take a look and contemplate what this means.Continuing from the intro above: Powell repeatedly clarified that this is not quantitative easing or a signal of aggressive easing. "It is not intended to significantly influence the economy... This is about the plumbing of the financial system, not about moving policy."
I agree, it's monetary expansion, “Not QE.” It is only QE if the Fed targets buying longer-duration assets to stimulate the economy.
The signal is clear. There is stress in the system and plumbing problems in the funding markets. The Fed's move is a symptom of deeper structural issues rather than a deliberate signal of easing.
Too much government debt and spending is the problem. Currently, 20% of government tax revenues go toward paying the interest expense on outstanding debt.
What we need to watch is “Not QE” turning to “QE.” Regardless, the $40 billion in liquidity injections risk becoming inflationary.
Bottom line: the Fed can tinker at the edges, but none of this resolves the debt and spending problem. The path we’re on is one where policy becomes increasingly reactive rather than proactive.
My friend Thaxter sent me the following - same point.
Source: Linkedin
Not a recommendation to buy or sell any security. Please note that the information provided is not recommended for buying or selling any security and is provided for discussion purposes only. Current viewpoints are subject to change. Please note that the information provided is not recommended for buying or selling any security and is provided for discussion purposes only. See important CMG and NDR disclosures below.
Barry Habib on Fed Rate Cut - Surprise Shawty!
First, a quick summary taken from Barry’s presentation. Click on the picture of Barry to watch his and his team’s excellent update.
Source: MBS Highway
Source: MBS Highway
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Not a recommendation to buy or sell any security. Please note that the information provided is not recommended for buying or selling any security and is provided for discussion purposes only. Current viewpoints are subject to change. Please note that the information provided is not recommended for buying or selling any security and is provided for discussion purposes only.
Trade Signals: December 11, 2025 Update
Trade Signals is Organized in the Following Sections:
*Trade Signals basics: The Market Commentary section summarizes notable changes in the core key indicators: Investor sentiment, market breadth, stocks, treasury yields, the dollar, and gold. The Dashboard of Indicators provides a detailed view of all Trade Signals indicators.
Market Commentary - Fed 25 bps Cut and Surprises with QE Start at $40 Billion Per Month
From my friend Peter Boockvar: The Fed repeated that “economic activity has been expanding at a moderate pace.” The Fed has only jobs data from the BLS through September; they said, “The unemployment rate has edged up,” and that “More recent indicators are consistent with these developments.” They repeated that “Inflation has moved up since earlier in the year and remains somewhat elevated.”
I’ll have more commentary on QE and the current state in Friday’s OMR.
The 10-year Treasury Yield declined to 4.10% on Fed day but is now back up to 4.18%. The Weekly MACD is signaling higher interest rates. The Zweig Bond model remained in a -1 bear signal.
Not a recommendation to buy or sell any security. Used for risk management purposes. Consult your advisor.
You’ll find a detailed description of how it works in Trade Signals.
Key Macro Indicators - Investor Sentiment, Market Breadth, The S&P 500 Index (Stocks), The 10-year Treasury Yield (Bonds), and the Dollar
About Trade Signals
Trade Signals is a paid subscription service that posts the daily, weekly, and monthly trends in the markets (and more). Free for CMG clients. Not a recommendation to buy or sell any security. For discussion purposes only.
“Extreme patience combined with extreme decisiveness. You may call that our investment process.
Yes, it’s that simple.”
– Charlie Munger
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The views expressed herein are solely those of Steve Blumenthal as of the date of this report and are subject to change without notice. Not a recommendation to buy or sell any security.
Please note that the information provided is not recommended for buying or selling any security and is provided for discussion purposes only. Current viewpoints are subject to change. Please note that the information provided is not recommended for buying or selling any security and is provided for discussion purposes only.
Personal Note: SoFi Stadium, My Birds, and West Palm Beach
Checking in, not so confident as my Philadelphia Eagles have dropped three in a row. That may make others happy, and I get that. That’s what makes sports so much fun. But the overtime loss on Monday night to the LA Chargers was painful to watch.
I was at the game. A big thanks to a big man, Mark C., proudly wearing his Chargers jersey. And what a stadium. The best stadium venue I’ve experienced. Here’s a shot of Mike F, Kyle North, and me.
West Palm Beach is next. We are hosting a dinner for 30 clients and readers on Monday evening. We have room for a few more. If you are interested, please contact Amy at Amy@cmgwealth.com.
Wishing you a wonderful weekend! And best of luck to your favorite team.
Warm regards,
Steve
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Stephen B. Blumenthal
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Stephen Blumenthal founded CMG Capital Management Group in 1992 and serves today as its Executive Chairman and CIO. Steve authors a free weekly e-letter entitled, “On My Radar.” Steve shares his views on macroeconomic research, valuations, portfolio construction, asset allocation and risk management. Author of Forbes Book: On My Radar, Navigating Stock Market Cycles.
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