Recent policy developments in the United States, particularly those related to inflation and long-term debt sustainability, have brought significant implications for global fixed income markets. With the fiscal outlook becoming increasingly strained, it is an interesting moment to assess how markets are reacting and how investors should position themselves in the current environment.

While stressful, equity volatility and intra‑year pullbacks are surprisingly common. Since 1980, the S&P 500 has averaged an intra‑year decline of around 14 %, with individual drawdowns reaching up to 40 %. This helps put the recent market disturbance into perspective.

Nowadays, governments are increasingly shaping markets, introducing an era of fiscal dominance. Gone are the days of aggressive central bank activism from the early 2000s, when institutions like the Fed and the ECB worked on stabilising the economy through quantitative easing, forward guidance, and rapid rate cuts. These actions were largely technocratic and independent of elected governments.