Powell: ‘The US is on an unsustainable fiscal path’

“The United States is on an unsustainable fiscal path,” Federal Reserve Chairman Jerome Powell said in a 60 Minutes interview with Scott Pelley released Sunday.

“The U.S. federal government is on an unsustainable fiscal path. And that means debt is growing faster than economic growth. So it’s unsustainable. That’s the argument. I don’t think there’s any room,” Powell said in response to a question about whether government debt is dangerous to the economy.

The U.S. national debt exceeded $34 trillion for the first time in early January, just over three months after exceeding $33 trillion, according to data released by the U.S. Treasury Department.

Amid tensions over the national debt, Congress is grappling with how to finance the government and has missed three spending deadlines since late September.

Under the latest stopgap measure passed in January, funding for four federal agencies expires on March 1. Funding for remaining government agencies is scheduled to run out on March 8th.

President Biden and House Republicans clashed last spring over borrowing limits, ultimately averting a crisis just days before the U.S. defaulted on its debt. However, Fitch Ratings downgraded the U.S. credit rating from “AAA” to “AA+” in August, citing the country’s growing debt burden and repeated partisan tensions over the debt ceiling.

Despite the Fed chairman’s long-term concerns about the nation’s debt, members of the central bank’s rate-setting committee believe “the economy is in good shape,” he said.

The economy is growing rapidly, reaching an annualized rate of 3.3% in the fourth quarter of 2023, according to the latest data released by the Department of Commerce’s Bureau of Economic Analysis.

According to the latest Consumer Price Index (CPI), the inflation rate has also fallen significantly from a peak of 9% in summer 2022 to 3.4% in December. The Fed raised interest rates from near zero in March 2022 to a range of 5.25% to 5.5% in June 2023, then left rates unchanged at subsequent meetings.

Fed officials had signaled that a rate cut in 2024 was imminent, but as expected, the Fed held off on cutting rates after its January meeting last Wednesday. What was less expected was that Powell suggested in a press conference following the announcement that a rate cut in March was off the table, a position he further reinforced in an interview on 60 Minutes.

“I think, and I said yesterday, that this committee is unlikely to reach that level of confidence before its March meeting in seven weeks,” Powell said.

“What would make us want to move sooner is if we see weakness in the labor market, if we see inflation coming down really convincingly,” he added.

Mr. Powell and the Fed are under fire from both sides of the political spectrum over their decision to keep interest rates at their highest levels in more than 20 years.

Former President Trump, in a Fox Business interview on Sunday’s “Morning with Maria,” accused Powell of being “political” and said he expected the Republican appointee to help Democrats in the upcoming election. He indicated that he would cut interest rates.

Some Senate Democrats also urged the Fed chair to lower interest rates ahead of last Wednesday’s meeting.

“As the Fed considers its next actions in the new year, it will consider the impact of its rate decisions on the housing market and reverse onerous rate hikes that have put affordable housing out of reach for too many. I urge you to do so,” Sens said. Elizabeth Warren (D-Mass.), John Hickenlooper (D-Colo.), Jacky Rosen (D-Nev.), and Sheldon Whitehouse (D.I.) last Sunday. In a letter to Mr. Powell he wrote:

But Powell rejected any suggestion that politics would play a role in the Fed’s decision to cut interest rates in the coming months.

“We don’t consider politics in our decisions. We never do. And we never will,” Powell said. “Honesty is precious. And in the end, that’s all you have.”