Glossary · from the DESK dictionary
Fiscal Policy
The government's use of spending and taxation to influence the economy.
In plain words
Unlike monetary policy (the central bank), fiscal policy is the government's/legislature's domain — e.g. stimulus packages or tax cuts.
In more detail
Fiscal policy is steering the economy through government spending and revenue. Its relationship with monetary policy is decisive for market analysis: the two can pull in the same or opposite directions. Expansionary fiscal policy alongside tight monetary policy produces a characteristic effect — high rates with a robust economy and typically a strong currency, because capital is drawn by the high rates.
Example
A country runs a 7 percent budget deficit alongside rising policy rates. The economy stays robust, rates stay high and the currency appreciates — a pattern many forecasting models had not expected.
What it means for traders
An important complement to monetary policy for understanding macroeconomic management.
Common pitfalls
Can lead to rising government debt and potential conflicts of interest with monetary policy (see fiscal dominance).
Related terms
Austerity · Automatic Stabilizer · Balanced Budget · Budget Deficit · Fiscal Cliff · Fiscal Federalism · Fiscal Multiplier · Fiscal Stimulus · Monetary Policy · Golden Rule of Fiscal Policy · Government Spending · Green Budgeting · Janet Yellen · John Maynard Keynes · Pump Priming · Sovereign Debt
From the DESK dictionary. For information only, not investment advice.
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DESK is a research tool and not investment advice. Page generated: 2026-10-12.