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The Federal Reserve appears content to leave the federal funds rate—now targeted at 1.5% to 1.75% —steady through 2020. Growth looks solid enough and inflation within Chairman Jerome Powell’s comfort zone but longer term, the economy faces challenges that may require better monetary-policy tools.

Until late last year, President Donald Trump’s detractors, who view his tax cuts as irresponsible and tariffs on China and others ill-conceived, advocated for further rates cuts. They argued his tax cuts created a sugar high in consumer demand, the majority of corporate CFOs were planning for a recession in 2020, and the stock market rally SPX, +0.39%  was thin—driven mostly by big tech stocks.

The facts then shifted. Consumer confidence remains robust, USMCA will likely be ratified soon, a phase-one trade deal with China promises more exports, cyclical stocks are contributing more to the stock market rally, and analysts expect corporate profits this year to advance 9.4%. As businesses continue to add jobs each month, the latter inspires optimism for sustained growth.

Central bank interest rate cuts have diminishing returns.

Healthy businesses are flush with capital and spend a lot less on structures and machines in a service-oriented economy than they did when manufacturing dominated. And global markets are flush with funds looking for places to invest, as savings have risen with aging populations.

Manufacturers are focused more on artificial intelligence and product transformation—for example, self-driving and electric vehicles. The emphasis is on R&D rather than new factories and machines, and businesses would rather finance the former out of cash flow rather than by borrowing.

WeWork may have been mismanaged but the potential market for small and temporary office space reflects that individuals and small groups can start businesses with laptops instead of lathes and metal presses—even from home if commercial rentals are too rigid or high. All reduce demand for new commercial space.

Mortgage rates fell long before the Fed started cutting rates in August. While those boosted mortgage lending, rates did not drop further on cue from the Fed afterwards.

Optimism notwithstanding, another recession will happen sooner or later, and likely will be triggered by promiscuity in the financial sector again.

In Europe, German and Italian banks have not adequately restructured in the wake of the financial crisis. In China, Beijing has been buying equity stakes in private firms to relieve debt burdens.

In the United States, Moody’s and other bond raters have been assigning generous assessments to companies in the B and C brackets, and many auto loans exceed the drive-off price of vehicles.

With the federal funds rate so low, the Fed has little room to lower interest rates further in a crisis. And jumping into the longer-term Treasury and mortgage-security markets won’t do any more to stem the hemorrhaging than quantitative easing did from 2008 to 2014.

The Fed should consider issuing digital currency to household and businesses and with the Treasury, seek authority from Congress to issue helicopter money in a crisis.

Already commercial banks, asset managers and hedge funds have digital accounts at the Fed that pay interest—practices that did not exist prior to the financial crisis. That is where commercial banks park required and excess reserves but in a crisis the Fed adding to those reserves hardly guarantees risk-averse banks will lend to businesses and consumers.

These days banks carry reserves far in excess of what the Fed requires and often refuse to lend excess funds to businesses, even those offering Treasury securities as collateral. Simply, the banks would rather pay checking and short-term money-market account customers less than 0.2% and earn 1.55% at the Fed.

To break this reticence, the Fed should end interest payments on excess reserves and in a recession, focus more on injecting additional excess reserves on to bank balance sheets than cutting rates further.

Congress could authorize the Treasury to print bonds, place those on the Fed balance sheet and directly inject cash into business and consumer accounts. That would be more effective than slow-moving infrastructure projects or toying with the tax system.

Incentivizing banks to lend by not rewarding passive reserves and the capacity to directly inject money directly into business and consumer checking accounts would give the Fed sharper tools in a crisis.