Two words that worry global central bankers the most

Around the world, what were once solid lines dividing the responsibilities of those in charge of fiscal policy and monetary policy are being challenged or redrawn.

The big picture: If elected governments succeed in undermining their central banks' independence — pressuring them to suppress interest rates or monetize debt to bail out yawning public debt problems — it foretells a world of higher inflation and economic volatility.

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. ...