Fed Chair Powell points to ‘unsustainable debt’ concerns

“Federal Reserve Chairman Jerome Powell warned lawmakers Wednesday that the ballooning federal debt could hamper Congress’ ability to support the economy in a downturn, urging them to put the budget ‘on a sustainable path.’

“Powell suggested such fiscal aid could be vital after the Fed has cut its benchmark interest rate three times this year, leaving the central bank less room to lower rates further in case of a recession.

“‘The federal budget is on an unsustainable path, with high and rising debt,’ Powell told the Joint Economic Committee. ‘Over time, this outlook could restrain fiscal policymakers’ willingness or ability to support economic activity during a downturn.’”

“He also said that U.S. national debt was unlikely to create a financial crisis for decades. The United States has advantages, he said, such as a productive, growing economy and the fact that the dollar is the world’s reserve currency. … But as long as the debt is growing faster than the U.S. economy, he said, it means that future generations may have to spend more on interest than on productive investments such as infrastructure or education.”

“In fiscal year 2019, which ended on September 30, the federal budget deficit totaled $984 billion—$205 billion more than the shortfall recorded in 2018. The deficit increased to 4.6 percent of the nation’s gross domestic product (GDP) in 2019, up from 3.8 percent in 2018 and 3.5 percent in 2017. As a result, federal debt held by the public rose to 79.2 percent of GDP, up from 77.4 percent at the end of fiscal year 2018.”