Interest rates: Powell tells Congress federal debt is ‘unsustainable’

Powell: . is ‘on unsustainable path,’ crimping ability to respond to

warned lawmakers Wednesday that the ballooning federal debt could hamper ’ ability to the in a downturn, urging them to put the budget “on a sustainable path.”

Powell suggested such fiscal could be vital after the has its benchmark interest rate three times this year, leaving the central 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 , this outlook could restrain fiscal policymakers’ willingness or ability to support economic activity during a downturn.”

Powell also reiterated that the Fed is likely done rates unless the economy heads south.

“The outlook is still a one,” he said. “’s no this expansion can’t continue.”

The testimony marks a more aggressive tone for Powell, who generally has steered clear of lecturing lawmakers on the hazards of the federal deficit. But after raising its key rate nine times since late 2015, the Fed has lowered it three times this year to off the risk of recession posed by Donald ’s with and a sluggish global economy.

Those developments have and while remains on solid footing.

The Fed’s benchmark rate is at a range of 1.5% to 1.75%, above the near-zero level that persisted for years after the Recession of 2007-09 but the 2.25% to 2.5% range  this year.

“Nonetheless, the current low-interest-rate limit the ability of monetary to support the economy,” Powell said.

Noting the Fed has lowered its federal funds rate an average 5 percentage points in prior downturns, Powell said, “We don’t have that kind of room.” He added, “Fed policy also be , though,” if the nation enters a recession. Fed officials have said they still have ammunition to fight a slump, including lowering rates and resuming bond purchases.

Meanwhile, the federal budget deficit hit $984 billion in fiscal 2019, the highest in seven years, and it’s expected to top $1 trillion in fiscal 2020. The federal and spending increases spearheaded by Trump have added to the and are set to add at least $2 trillion to the federal debt over a decade. The national debt recently surpassed $23 trillion.

“The debt is growing faster than the economy and that is unsustainable,” Powell said.

He added that a high and rising federal debt also can “restrain private investment and, thereby, reduce and overall economic .” That’s because swollen debt can push higher.

“Putting the federal budget on a sustainable path would aid in the -term vigor of the and ensure that policymakers have the to use fiscal policy to assist in stabilizing the economy if it weakens,” Powell said.

He added, “How do that and when do that is up to .”

Many economists are forecasting a recession year, though the risks have eased now that the U.S. and China appear close to a partial of their trade fight and the of a that doesn’t a trade agreement between and have fallen.

Powell also said the Fed is unlikely to reduce interest rates further unless the economy weakens significantly – a he delivered after the central bank trimmed its key rate for a third time late last month.

“We see the current of as likely to remain appropriate” as long as the economy, market and remain consistent with the Fed’s outlook, Powell said.

Since last month’s Fed meeting, the has reported that employers added 128,000 in October – a surprisingly strong in of a Motors strike and the of temporary 2020 census .

“There’s a lot to like about today’s labor market,” Powell said. He noted the 3.6% rate, near a 50-year low, is drawing Americans on the sidelines back into the workforce. And while average yearly has picked up to 3%, it’s lower than anticipated in light of the low jobless rate. Inflation, he said, remains below the Fed’s 2% .

“Of course, if developments emerge that cause a material reassessment of our outlook, we would respond accordingly,” Powell said.

Sen. Cruz, R-, tried to coax the Fed  into weighing in on the potential economic impact of “a massive tax increase,” which some analysts say could be required by several Democratic presidential candidates’ proposals for universal or free tuition.

“I’m particularly reluctant to be pulled into the ,” said Powell, a and Trump appointee who has been repeatedly attacked by the president for not cutting interest rates more sharply.

Related posts