2024 Supervisors Symposium

Internal Use Only We are having both monetary and fiscal policy challenges. • Fed has made a policy error by announcing a start to a rate cut cycle in August at Jackson Hole and starting into a rate cut cycle given the following: • the US economy is strong • fiscal policy is loosening and may ease further • inflation had not yet returned to target • In Sept Chair Powell emphasized that inflation is “much closer” to target and the labor market is “less tight.” He also emphasized r* -- • what is r* -- it is the assumed long run neutral real interest rate for the economy… • But given the level of the government budget deficit we probably were at neutral prior to Sept FOMC… • We are closer to the end of the Fed rate cut cycle than the market seems to realize. Risk-assets may be vulnerable if Fed stops rate cut cycle; lower asset values would reduce wealth effect and spending; US economy could decelerate. • 5 Commercial Banking Program (CBP) Adam C. Sinn ‘00 Department of Finance

Internal Use Only

In Q3 & Q4 US monetary and fiscal policy eased simultaneously

Commercial Banking Program (CBP) Adam C. Sinn ‘00 Department of Finance

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