Federal Reserve Chairman Jerome Powell is concerned about rising US debt. The annual debt in 2018 topped $1 trillion, while the overall deficit was $21.9 trillion as of January 8, according to the US Treasury, $16 trillion of which is owed by the public.
“I’m very worried about it,” Powell told those at The Economic Club of Washington, DC, on Thursday. “From the Fed’s standpoint, we’re really looking at a business cycle length: that’s our frame of reference.”
“The long-run fiscal, nonsustainability of the U.S. federal government isn’t really something that plays into the medium term that is relevant for our policy decisions,” Powell continued. “It’s a long-run issue that we definitely need to face, and ultimately, will have no choice but to face.”
While the US has sustained annual debts higher than 2018’s, the debts were high in 2009 and 2010 when the economy was recovering from the Great Recession. Currently, even though the economy is strong, the annual national debt is growing.
Analysis done by PBS NewsHour in October 2018, explained why the debt is rising — and why it could be a problem.
Part of the cause, PBS NewsHour correspondent Lisa Desjardins explains, is because 2018 was the first year of President Donald Trump’s tax bill. Tax revenue, she said was nearly flat, while government spending — by both Democrats and Republicans — increased with the bipartisan budget bill.
“We also see, if you look at the numbers, corporate tax receipts fell 30 percent,” David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, told NewsHour. “And that’s largely the result of the president’s tax cut.
“So what we’re seeing — you would expect at a time like this revenues rising faster than spending, because the economy is strong, more people working, paying taxes, fewer people collecting unemployment benefits and such, and the deficit would shrink,” he continued. “We see the opposite, and that’s largely because of the tax cut.”
If current laws stay in place, Business Insider’s Bob Bryan explained in October, the annual deficit is expected to hover at “just shy of $1 trillion for fiscal year 2019 and will eclipse the $1 trillion mark in the following four years, according to official Trump administration estimates.”
And with a rise in interest rates, which the Fed raised four times in 2018, the interest on US debt grows. In December, Wall Street’s “bond king” Jeffrey Gundlach said the Fed was on a “suicide mission,” raising rates while the deficit grows. The Fed is projecting two interest-rate hikes in 2019.
Another worry is that strong economies don’t always remain strong, there’s concern about what would happen if the US hit another recession, CNBC reports.