Two words that worry global central bankers the most

• It was a challenge very much on the minds of the central bankers who assembled over the weekend in Jackson Hole, Wyoming, for the Kansas City Federal Reserve's annual symposium — and underscored by recent news.

Zoom out: Central bankers' great fear is that we're entering a new era of "fiscal dominance," in which the money supply is being managed not to achieve low and stable inflation, but to help elected politicians avoid hard choices around taxes and spending.

• It comes as inflation has already been elevated in much of the world for years and as longer-term interest rates are climbing.
• At the same time, elected governments are under intense political pressure not to enact the tax increases or public benefit cuts that would improve their debt outlooks.

Driving the news: The Bank of Japan has been under intense pressure from Prime Minister Sanae Takaichi's government to not raise interest rates despite accelerating inflation, while the Japanese finance ministry has worked with the U.S. Treasury on unusual interventions in currency markets to bolster the yen.

• Leftist French presidential candidate Jean-Luc Mélenchon has proposed canceling debt held by the European Central Bank, essentially seeking to ease the nation's fiscal challenges by offloading the burden on the continent's monetary authority.
• And in the United States, President Trump has undertaken a renewed attempt to fire Fed governor Lisa Cook, which, if successful, could also presage attempts to remove governors Michael Barr and Jerome Powell.
• In addition to Trump's longstanding attacks on the Fed, demanding lower interest rates, the Treasury has undertaken efforts to suppress long-term borrowing costs with a bond market intervention.

What they're saying: "In the context of escalating fiscal pressures, central banks around the world may face pressures about risks of fiscal dominance," IMF managing director Kristalina Georgieva said on a panel in Jackson Hole Friday.

• "Standing here in this legendary monetary policy setting—in this great state of rodeos where every license plate shows a cowboy on a bucking bronco—let me frame the answer in the following way," she said.
• "Central banks' most critical role is to ensure inflation remains low and stable. ... And that means no monetary policy cowboys riding to the fiscal rescue."

Reality check: The efforts to undermine central bank independence have had only modest success so far. Most of the institutions have significant legal safeguards insulating them from political pressure.

• Friday morning, Fed chairman Kevin Warsh strongly suggested that interest rates are in play if the Fed does not gain confidence that inflation is coming down, contrary to the oft-stated desires of the president who nominated him just months ago.

Yes, but: The underlying debt situation in the U.S. — annual deficits of 6% to 7% of GDP even amid full employment — means that any further rise in interest rates will only complicate the politics facing the Fed.

• And while the numbers and institutional details differ around the world, the basic story is the same across most major advanced economies.

The bottom line: "If legislatures end up viewing central banks as a money pot, the risk is you end up compromising on monetary policy for the sake of fiscal authorities," Adam Posen, president of the Peterson Institute for International Economics and a former Bank of England official, tells Axios.

• "If it's World War II or the Great Depression, that's fine," he adds. "But doing that in a more normal economic backdrop is dangerous."