The federal funds rate should remain accommodative, and the fiscal imbalance is expected to improve with the growth of the US GDP.

U.S. Treasury Department Chief Economist Lavorgna recently stated that the Federal Reserve should continue the easing cycle under the current environment. His core logic is based on the fact that the labor market is performing relatively well, with the unemployment rate at a reasonable and balanced level, indicating no need for excessive monetary tightening.

Against this macro backdrop, Lavorgna expects the U.S. fiscal deficit as a percentage of GDP to further improve by 2026. This forecast is based on two aspects: first, a loose monetary environment will support economic growth and help increase tax revenues; second, fiscal expenditures are expected to be better controlled.

From a market perspective, there is a subtle balance between the Federal Reserve’s rate cut expectations and the U.S. GDP growth rate. If the rate cuts are too gradual, growth may be suppressed; if too aggressive, inflation risks will rise. Lavorgna’s view suggests that there is still policy space to maneuver and that priority should be given to supporting the economic fundamentals.

It is worth noting that the improvement in the U.S. fiscal deficit as a percentage of GDP will directly impact the dollar’s trend and global liquidity expectations, which in turn will have a chain reaction on digital assets and other risk assets.