Paul L. Caselle is a senior macroeconomist and winner of the Blue Chip Economic Forecasting Award. He previously worked in the research department of the Federal Reserve Bank of Chicago and has 25 years of experience in macroeconomic research at leading institutions. He also served as the chief economist at Northern Trust. He is one of the few experts in the industry who predicted the US housing bubble and subsequent systemic financial risks in advance, and has long been deeply involved in the research of Federal Reserve monetary policy and macroeconomic cycles. This article presents his views on a simpler and more robust monetary policy optimization plan proposed for the 2026 Jackson Hole Economic Symposium. I. Shifting Focus at the Annual Meeting: The Fed Urgently Needs to Return to the Core Economic Contradictions The Jackson Hole Global Central Bank Annual Meeting will be held as scheduled at the end of August 2026, with "Financial Innovation and Payment System Reform" as its core theme. However, senior economists believe this is not the most pressing issue for the current US macroeconomy. In recent years, frequent global supply-side disruptions and increased volatility in commodity and raw material supplies have directly led to recurring inflation and pressure on the resilience of US economic growth. The Fed's long-standing reliance on interest rate hikes and cuts is showing its drawbacks: frequent policy adjustments, chaotic market expectations, and inflation frequently deviating from the 2% policy target. Against the backdrop of normalized external shocks, the traditional interest rate control framework lacks stability, and the market urgently needs a more mature and sustainable monetary policy path. II. Core New Idea: Weakening Interest Rate Control, Anchoring Overall Credit Growth The core policy recommendation proposed in this article is to weaken the traditional federal funds rate adjustment tool and instead use a set of rule-based and standardized control targets: maintaining a stable annual growth rate of 5.5% for the overall credit scale of the US banking industry. The core credit indicator in this article, whose statistical scope covers the excess reserves, securities holdings, and total loans of various types of depository financial institutions in the United States, is a core comprehensive indicator for measuring the liquidity injected into the real economy by the banking system, and can comprehensively reflect the overall level of capital supply in the market. The policy logic is clear and consistent with macroeconomic laws: the prosperity of the macroeconomy and the trend of inflation are essentially determined by the overall level of social liquidity. Compared with discretionary interest rate adjustments, the rule-based policy of fixing credit growth can greatly stabilize market expectations and avoid market disturbances caused by frequent policy changes. Seventy years of historical data have verified the foresight and effectiveness of this indicator: the expansion and contraction of bank credit scale leads the growth rate of the real economy by one year and the inflation trend by two years, and has a significant positive correlation with core macroeconomic indicators, making it a high-quality leading indicator for predicting economic cycles and price trends. III. The Underlying Logic of Credit Regulation: Liquidity Increment Determines the Macroeconomic Cycle General private lending and inter-entity fund transfers in the market are merely transfers of existing funds and do not increase total social liquidity, therefore they are unlikely to have a sustained impact on the overall economy and inflation. Credit creation in the banking system is entirely different. The Federal Reserve's open market operations and commercial bank lending both constitute incremental liquidity creation, directly expanding the total social capital base, driving consumption and investment demand, and ultimately transmitting to the real economy and price levels. This is the core reason why total credit can accurately anchor macroeconomic trends. Based on long-term historical data from 1955 to 2025: the long-term potential economic growth rate of the United States is about 3%, coupled with the Federal Reserve's 2% inflation target, a comprehensive calculation shows that an annual credit growth rate of 5.5% is the optimal range for matching the fundamentals of the US economy, supporting reasonable economic growth while avoiding the risk of inflation deviating significantly from the target. IV. Implementation Path: Optimizing Two Mechanisms to Achieve Precise Liquidity Management To stably achieve the 5.5% annual credit growth target, the Federal Reserve only needs to optimize two core systems to achieve precise and controllable regulation of market liquidity. First, optimize the bank reserve assessment mechanism. Change the traditional reserve provision model based on deposit size to one based on the scale of bank lending and securities holdings. The Federal Reserve can precisely constrain the upper limit of market credit expansion by adjusting the reserve balance of financial institutions, achieving refined management of total liquidity. Second, the policy of paying interest on reserves will be abolished. This policy has long inflated the willingness of financial institutions to hold reserves, resulting in a large amount of funds being tied up in the Federal Reserve system and unable to flow to the real market, while also hindering the Fed's balance sheet reduction process. Abolishing this mechanism will significantly improve the efficiency of fund allocation and greatly enhance the Fed's flexibility in controlling the overall liquidity. Under the new framework, short-term market interest rates may fluctuate slightly, but compared to the systemic risks of runaway inflation and significant economic volatility, moderate short-term interest rate fluctuations are costly and offer higher overall policy benefits. Fifth, the core advantages of the new framework: a policy system with high risk resistance and high fault tolerance . Traditional interest rate control models have significant shortcomings. Policies rely on manual judgment and are easily caught in the dilemma of "stabilizing growth and combating inflation" due to prediction errors, resulting in high costs for policy mistakes. The rule-based framework of constant credit growth is more resilient to external shocks. Faced with supply-side shocks such as commodity price fluctuations and supply chain disruptions, although short-term prices may rise temporarily, the overall market liquidity remains stable, and inflation lacks a basis for sustained increases, gradually returning to a reasonable range. If future technological advancements and increased production efficiency allow for a stable liquidity supply to match the potential growth rate of the economy, the US can achieve a healthy macroeconomic environment of low inflation and high growth. Furthermore, this framework offers excellent tolerance for error; even with a slight deviation from the 5.5% growth target, inflation will remain within a stable range and will not deteriorate continuously, significantly reducing the trial-and-error costs of monetary policy and the risk of market volatility. VI. Conclusion The Federal Reserve's long-standing interest rate control framework, while flexible, lacks stability and is ill-suited to the current macroeconomic environment of frequent shocks. In contrast, a rules-based policy anchored to 5.5% stable credit growth, with its simple and implementable mechanism, can replace frequent subjective policy adjustments and continuously stabilize inflation expectations and smooth economic cycle fluctuations. This represents a superior direction for the Federal Reserve to overcome traditional policy dilemmas and optimize its monetary policy system.