Federal Reserve Chairman Jerome Powell says in the long run, the U.S. federal government is on an unsustainable fiscal path due to its ballooning debt growing faster than the economy. Moreover, the Fed chair cautioned that there will be some banks that have to be closed or merged out of existence.
Jay Powell on US Economy, Rate Cuts, Banking Crisis
Federal Reserve Chair Jerome Powell addressed issues concerning the U.S. economy, interest rate cuts, and potential banking crisis in an interview with 60 Minutes, published on Sunday. Replying to a question about whether the national debt is a danger to the U.S. economy, Powell said:
In the long run, the U.S. federal government is on an unsustainable fiscal path.
He noted that it means “the debt is growing faster than the economy,” emphasizing that “it is unsustainable.” However, Powell stressed: “I don’t think that’s at all controversial. I think we know that we have to get back on a sustainable fiscal path, and I think you’re starting to hear now from people in the elected branches who can make that happen. It’s time that we got back to that focus.”
The Fed chair continued: “I think the pandemic was a very special event, and it caused the government to really spend to ward off what looked like very severe downside risks. It’s probably time, or past time, to get back to an adult conversation among elected officials about getting the federal government back on a sustainable fiscal path.”
Regarding when the Fed will start cutting interest rates, Powell shared: “We want to see more evidence that inflation is moving sustainably down to 2% … We just want some more confidence before we take that very important step of beginning to cut interest rates.” He clarified: “Basically, we want to see more good data … It doesn’t need to be better than what we’ve seen, or even as good. It just needs to be good. And so, we do expect to see that. And that’s why almost every single person on the Federal Open Market Committee believes that it will be appropriate for us to reduce interest rates this year.”
Powell also addressed the likelihood of bank failures across the U.S. as seen in 2008. The Fed chairman opined: “I don’t think there’s much risk of a repeat of 2008. I also think, you know, we need to be careful about making proclamations, particularly about the future. Things have surprised us a lot. But no, on this, I do think it’s a manageable problem.” Nonetheless, he cautioned:
There will be certainly — there will be some banks that have to be closed or merged out of, out of existence because of this. That’ll be smaller banks, I suspect, for the most part.
