The economy is poised to grow. The job now falls to the Fed and Treasury to cut, sell, and coordinate before the window of opportunity closes.

T he newly enacted One Big Beautiful Bill Act is already lifting America’s economic outlook. President Trump and Congress have delivered a one-two punch by pairing pro-growth tax policy with reductions in the growth in spending.

This policy mix will add near-term fuel by lowering the cost of capital that powers long-run productivity. It will also limit future liabilities and encourage future labor force participation through work requirements on the nation’s largest welfare programs. It’s clear that investors are seeing credibility in that mix. At last week’s Treasury auctions, both ten- and 30-year securities drew healthy demand. There is still more work to be done to improve the federal government’s fiscal outlook, of course, but this is a very good signal for America’s economy.

That assurance gives the Federal Reserve and the Treasury Department the ability to tighten their coordination while strengthening their institutional roles. The Fed should cut its policy rate at the July meeting and, at the very same time, accelerate the sale of Treasuries from its massive balance sheet. Treasury, for its part, should lean on its revived buyback program to recycle the securities released by the Fed with minimal stress on the market.

Economic conditions already argue for such a move. Technological advancements, particularly in artificial intelligence, are poised to increase productivity, which can help suppress inflationary pressures. Meanwhile, core inflation has drifted close to the Fed’s 2 percent target while the funds rate remains above 4 percent. This leaves borrowers facing a real rate that is at least one to two points higher than the “neutral” rate at which the economy is neither stimulated nor restrained. With inflation having eased and no indication that tariffs will lead to sustained inflation, an elevated policy rate is no longer economically warranted.

Leading indicators are also beginning to point to slack in employment. Job creation is moderating, the labor supply is declining, and banks are still tightening credit. If the Fed cuts the rate now, it will steepen the yield curve and restore margins that small lenders need to finance small business growth and ignite investment. An adjustment now would lower financing costs and reinforce potential weaknesses in the labor market.

This might first appear to be a contradiction. How can monetary easing coexist with bond sales? The Fed still holds almost $6.7 trillion of Treasuries and other assets even after two years of quantitative tightening. This is equivalent to about 22 percent of GDP. Those assets are funded by reserves on which the Fed pays interest. However, if it leaves trillions in reserves still in the banking system, a rate cut risks reigniting inflation. Selling bonds as it cuts rates drains some of that liquidity and keeps inflation expectations firmly grounded.

Taxpayers will also benefit. For every $100 billion in reserves, the federal government pays roughly $4 billion a year in interest to banks when rates are at 4 percent. Moving those bonds off the Fed’s books and into Treasury’s buyback program allows the federal government to refinance the same debt at a lower cost. This shift in interest-bearing reserves to lower-coupon market debt works while demand for long-term debt remains robust, as last week’s auctions suggest.

This plan would also reassure the public that monetary policy is still guided by the Fed and not by desires in Washington for more debt. Over the last decade and a half, lawmakers have taken comfort in the belief that the central bank would keep buying whatever debt they issued, effectively treating the Fed as a standing buyer of last resort. This has blurred the line between monetary and fiscal policy, eroding the Fed’s independence. By contrast, having Treasury purchase the debt that the Fed releases will make it clear that deficit finance remains Treasury’s responsibility while balance sheet management remains the Fed’s. The result is expected coordination, with which no one can credibly claim the central bank is underwriting federal borrowing.

Being too timid is now a greater threat. If the Fed cuts rates without reducing its debt holdings, reserves will grow the moment growth slows, forcing unprecedented experiments in balance-sheet management. If it sells bonds but keeps policy rates too high, it will strangle the investment that the new law is poised to unleash. Only by advancing can policymakers lock in the virtuous cycle that the One Big Beautiful Bill Act has set in motion.

The economy is poised to grow. The job now falls to the Fed and Treasury to cut, sell, and coordinate before the window of opportunity closes.