USA Today - Powell: U.S. Debt is 'On Unsustainable Path,' Crimping Ability to Respond to Recession

Article by Paul Davidson in USA Today

Fed to Congress: It may soon be your turn to save the economy so get your finances in better shape.

Federal Reserve Chairman Jerome Powell plans to warn lawmakers Wednesday that the ballooning federal debt could hamper Congress’s 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 said in prepared remarks he planned to deliver at 11 a.m. Wednesday before the Joint Economic Committee. “Over time, this outlook could restrain fiscal policymakers’ willingness or ability to support economic activity during a downturn.”

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 tax cuts spearheaded by Trump have added to the red ink and are set to add $1.5 trillion to the federal debt over a decade. The national debt recently surpassed $23 trillion.

Powell said a high and rising federal debt also can “restrain private investment and, thereby, reduce productivity and overall economic growth.” That's because swollen debt can push interest rates higher.

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