Suppose that the Fed is using the Ample Reserves framework due to a large increase in reserves after the Great Recession. Suppose also that the U$.$S$.$ economy enters a recession in $2024,$ and the Fed responds by reducing administered rates $($the Discount Rate, the IORB rate, and the ON RRP rate$)$ in order to lower interest rates across the economy, encouraging spending. Remember, the Fed's position on this is that it is changing interest rates to encourage or discourage borrowing and spending, and not changing money supply. If the Fed is correct, then...

Suppose that the Fed is using the Ample Reserves framework due to a large increase in reserves after the Great Recession. Suppose also that the U$.$S$.$ economy enters a recession in $2024,$ and the Fed responds by reducing administered rates $($the Discount Rate, the IORB rate, and the ON RRP rate$)$ in order to lower interest rates across the economy, encouraging spending. Remember, the Fed's position on this is that it is changing interest rates to encourage or discourage borrowing and spending, and not changing money supply. If the Fed is correct, then...

Interest rates fall, money supply growth rises, and Dynamic Aggregate Demand shifts to the right.

Interest rates fall, velocity growth rises, and Dynamic Aggregate Demand shifts to the right.

Interest rates fall, velocity growth rises, and Dynamic Aggregate Demand shifts to the left.$$

Interest rates rise, velocity growth rises, and Dynamic Aggregate Demand shifts to the left.$$