“There’s no question of our ability to service and issue that debt for the foreseeable future,” he said during a virtual interview hosted by the Economic Club of Washington, D.C.
He warned, however, that the national debt is growing “meaningfully faster” than the U.S. economy. “That’s by definition, unsustainable over time. It’s a different thing to say that the current level of the debt is unsustainable. It’s not,” he said.
Federal debt held by the public reached 100 percent of gross domestic (GDP) product in the last fiscal year. And President Joe Biden’s $1.9 trillion coronavirus relief package signed into law last month increased the deficit and the national debt even further. The gross federal debt is on track to reach $30 trillion.
The Congressional Budget Office now projects the federal debt will be 107 percent of GDP by 2031, the highest level in U.S. history. When the economy is strong, Powell said, the United States could focus on addressing the debt problem.
“We will have to eventually get back to a sustainable path. That is something that is best done in very good times when the economy is at full employment and when taxes are rolling in. This is not the time to prioritize that concern,” he said.
Economists, including Lawrence H. Summers, the former Treasury secretary under President Bill Clinton, have raised concerns about Biden’s aid package and warned that excessive government spending could overheat the economy and fuel inflation.
A New York Times article published on April 13 revealed that Biden administration officials are “wary of the inflation threat” while they publicly defy warnings about “a 1970s-style escalation in wages and prices that could cripple the economy.”
The article stated that the officials “check on real-time measures of prices across the economy, multiple times a day.”
Prices have begun to rise at their fastest pace since 2012, according to Labor Department data on April 13. The consumer price index rose 0.6 percent in March, more than expected. Half of the increase was driven by a 9.1 percent jump in gasoline prices. Overall consumer prices were up 2.6 percent from a year ago, the fastest pace since August 2018.
This week’s inflation data, however, hasn’t altered Powell’s message. He said the unemployment rate could go low for a long time without inflation being a problem.
He added that the inflation in the United States has been running at low levels for decades and that’s mainly because of globalization, advancement of technology, demographics, and the aging population.
“Since the global financial crisis for the last decade, you’ve seen central banks around the world really struggle to reach a 2 percent [inflation] goal,” Powell said.
Some Republicans criticized Powell, Treasury Secretary Janet Yellen, and the White House for playing down the debt crisis and inflation threat. Following the New York Times article, Sen. Rick Scott (R-Fla.) put out a statement, saying, “They are lying in public, while privately worrying about the issue.
“It’s a disgusting betrayal of the trust of the American people. When inflation rises, the prices of everyday goods go up,” he wrote on April 14. “It’s time for Biden to acknowledge this threat is real, understand that his reckless spending has consequences, and address the risk of runaway inflation now.”
According to The New York Times, the White House is planning to dispense the money for the proposed $2.3 trillion infrastructure package “gradually enough not to stoke further price increases right away.”
The Fed officials expect upward pressure on prices this year due to an increase in spending with the opening up of the economy. The Fed’s recent inflation projection rose to 2.4 percent this year, up from 1.8 percent projected earlier. But officials expect inflation to return to 2 percent next year, indicating that inflationary pressures will be temporary.
“The structure of the economy is always changing,” Powell said. “The economy that we had back in college was one where low unemployment led to high inflation, inflation stayed high. It’s very different now.”
In an interview with Steve Bannon’s show War Room, former White House trade adviser Peter Navarro criticized comments made by Powell on CBS’s “60 Minutes” on April 11 about inflation and globalization. Navarro called Powell “the worst Fed chair in modern history.”
Navarro reacted to Powell’s comment that it’s hard for people in wealthy countries to raise prices and wages “when wages can move overseas.”
“The people who control this government—whether the Democrats or Republicans— think that whenever your wages go up, they’re going to ship your jobs offshore,” Navarro said. ✪