A failure to address these fiscal challenges would expose the United States to serious economic costs and risks. A high and rising level of government debt relative to national income is likely to eventually put upward pressure on interest rates, thereby restraining capital formation, productivity, and economic growth. Indeed, once the economy has recovered from its downturn, fiscal deficits will crowd out private spending.
It will need to continue to cooperate closely with the government and other central banks to implement flexible and bold policies in a timely and appropriate manner. 10  Appendix: Theoretical Background Model This appendix presents a two-country model describing the interdependence of monetary policy in the two countries.