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Inflation defences are no match for debt burden
People shop for fruit and vegetables at Borough Market in London. If inflation picks up again, the British government might tweak the inflation numbers used to calculate payments
Published: September 14, 2025
Countries across the Western world are over-indebted. In theory, they could grow their way out of the debt or rein in their fiscal deficits. But the richer countries have a miserable recent growth record. And as the fall of French Prime Minister François Bayrou this week shows, there's no public appetite for austerity. The siren of inflation calls. Whether countries succumb depends on how tightly they have lashed themselves to the mast.
Anti-inflation commitments vary in strength, from weak to strong. The weakest is central bank independence. Central bankers do not usually face the sack for missing their inflation target. Keeping monetary policy tight presents a bigger career risk, as Federal Reserve Chair Jay Powell has learned. Although the US central bank is notionally independent of the executive, President Donald Trump wants easy money and has taken to publicly berating Powell's decisions.
Trump is following a well-trodden path. Presidents Lyndon Johnson and Richard Nixon both pressured their top central bankers to ease policy. At one fractious meeting, LBJ is said to have pushed Fed Chair William McChesney Martin against a wall. Martin's successor, Arthur Burns, failed to stand up to Nixon and unwittingly unleashed the Great Inflation of the 1970s.
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