Skillful policy actions limited the extent and duration of last year’s economic downturn. A rapid monetary easing – both before and after the events of 11 September – combined with a substantial fiscal expansion to underpin household demand and boost activity. Monetary policy has remained very accommodative this year. Yet, core inflation has been moderate and edging lower, while inflation expectations have been well contained. Even though the recovery is still fragile, the focus will eventually turn to the timing and speed of a return to a more neutral monetary stance. On the fiscal side, renewed restraint will be needed, following the plethora of recent measures to cut taxes and boost spending. The large swing to deficits at the federal level and the deterioration in state finances imply that, in the absence of policy changes, a restoration of fiscal surpluses is unlikely over at least the next couple of years. Surpluses would be desirable both to contain longer-term macroeconomic imbalances and to prepare to address the population-ageing problem that will emerge more strongly at the end of the decade. The remainder of this chapter discusses, in turn, recent monetary and fiscal policy developments and the challenges in these areas in the period ahead.