WASHINGTON—Federal Reserve Chairman
said that the federal government can manage its debt at current levels but fiscal-policy makers should seek to slow its growth once the economy is stronger.
“Given the low level of interest rates, there’s no issue about the United States being able to service its debt at this time or in the foreseeable future,” Mr. Powell said Thursday in an interview with National Public Radio.
Congress and the White House have provided trillions of dollars of federal financial assistance since the Covid-19 pandemic hit the U.S. economy early last year, triggering a deep recession and uneven recovery. The resulting government budget deficits are expected to push the federal debt to 102.3% of gross domestic product by the end of the current fiscal year, up from 79.2% at the end of 2019, according to the Congressional Budget Office.
The CBO forecasts the debt will grow to 107% of GDP by 2031.
While a series of Covid-19 relief packages were passed in 2020 with strongly bipartisan support, GOP lawmakers have criticized
$1.9 trillion assistance package, saying its measures are less targeted than previous bills and that the economy is already recovering.
“You can’t go just spend money, spend money, spend money,” Sen.
(R., Fla.) said Tuesday on Fox Business. “About one out of every seven dollars we collect this year, it’s going out in interest expense. I mean, Inflation is going up, and it’s caused by a federal government and a Federal Reserve that doesn’t understand how reality works.”
In the interview Thursday, Mr. Powell praised Congress for acting swiftly to mitigate the pandemic’s effects on American companies and workers. He reiterated that the Fed is strongly committed to achieving inflation that averages 2% over time, a level that it has fallen short of over the past decade.
“There will come a time—and that time will be when the economy is back to full employment, and taxes are rolling in, and we’re in a strong economy again—when it will be appropriate to return to the issue of getting back on a sustainable fiscal path,” Mr. Powell said. “But that time is not now.”
Low interest rates—the product of tame inflation and sluggish economic growth—have made the burgeoning size of the federal debt more manageable, policy makers say. Treasury Secretary
noted this week that the federal government’s interest burden is lower than it was in 2007, even as the ratio of debt to GDP has nearly tripled. But she also called for Congress to eventually increase revenues to pay for higher spending.
Fed officials voted unanimously at their March 16-17 meeting to maintain overnight interest rates near zero and continue purchasing at least $120 billion a month of Treasury debt and mortgage-backed securities.
In a series of public appearances this week, Mr. Powell and his colleagues have reiterated that they don’t anticipate changing the central bank’s easy-money policies soon.
The Fed plans to hold interest rates steady until the U.S. labor market returns to full employment and inflation reaches its 2% target on a sustained basis. For most central-bank officials, that means no rate increases until 2024 or later, according to projections they released last week.
The Fed doesn’t plan to scale back the pace of asset purchases until the economy makes “substantial further progress” toward its goals, Mr. Powell repeated Thursday.
Write to Paul Kiernan at [email protected]
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