Janet Yellen warned Sunday that America’s surging national debt could severely constrain economic policymakers and undermine the independence of the Federal Reserve, raising the risk that political pressures will dictate monetary policy rather than economic conditions.
Speaking at a “Future of the Fed” panel hosted by the American Economic Association, Yellen said the United States is moving closer to a scenario known as “fiscal dominance,” in which a central bank is pressured to keep interest rates artificially low to help the government manage its debt burden.
“The preconditions for fiscal dominance are clearly strengthening,” Yellen said, warning that such pressure would impair the Fed’s ability to meet its core mandates of controlling inflation and supporting a healthy labor market.
U.S. Treasury Secretary Janet Yellen meets with Mesa Mayor John Giles and other Mesa city and labor leadership at the East Valley American Jobs Center on May 4, 2024.
Yellen, who also served as Treasury secretary under President Joe Biden, said there was little evidence that lawmakers were seriously addressing the country’s debt trajectory. The national debt surpassed $38 trillion in late 2025, and projections suggest it will climb much higher.
According to estimates from the Congressional Budget Office, cited by Yellen, federal debt could reach roughly $50 trillion — about 118 percent of gross domestic product — within the next decade. As borrowing grows, so too will debt-servicing costs, crowding out other government spending and increasing reliance on future borrowing.
Those pressures, Yellen said, raise the likelihood that central bank policymakers could be forced to keep interest rates lower than economic conditions warrant, simply to reduce the government’s interest payments.
The warning comes after a turbulent year for the Federal Reserve, which held interest rates steady through much of 2025 despite repeated demands from Donald Trump for aggressive rate cuts. Trump publicly argued that lower rates would boost growth and reduce debt-servicing costs, while also launching verbal and legal attacks against Fed Chair Jerome Powell — moves critics viewed as encroachments on the Fed’s long-standing independence.
Yellen said the stakes are especially high heading into 2026, with inflation still above the Fed’s 2 percent target and the labor market showing signs of strain, including slowing job growth and unemployment at a four-year high.
“Fiscal dominance is likely to raise term premiums and borrowing costs as investors become more concerned the government will rely on inflation or financial repression to manage its debt,” Yellen said. “For all of these reasons, avoiding fiscal dominance has been a central objective of modern central banking frameworks… In my opinion, the answer is yes, we should be concerned.”
Her remarks echo growing concerns among credit analysts. In May, Moody’s Ratings downgraded the U.S. credit outlook, citing chronic deficits and rising interest costs. The agency said successive administrations and Congress had failed to agree on credible plans to rein in spending or reverse debt growth.
“Persistent, large fiscal deficits will drive the government’s debt and interest burden higher,” Moody’s wrote, warning that entitlement spending is expected to rise while revenue remains largely flat.
Taken together, Yellen’s warning and Moody’s downgrade underscore a deepening anxiety among economists that unchecked borrowing could ultimately force the Federal Reserve into a subordinate role — one where managing government debt takes precedence over fighting inflation or stabilizing employment.
