Jerome Powell: “The level of debt we have is not unsustainable, but the path that we’re on is unsustainable”

Photo: Reuters

At the ECB Forum on Central Banking, Federal Reserve Chair Jerome Powell (photo) emphasized a careful approach to potential interest rate cuts and stressed the critical issue of the United States’ unsustainable debt path.

Speaking on a panel with ECB President Christine Lagarde and Central Bank of Brazil Governor Roberto Campos Neto in Sintra, Portugal, Powell reiterated that the latest inflation readings indicate a return to a disinflationary path, but warned that more data is needed before considering rate cuts, Business Insider informs.

At the end, Powell refrained from commenting on whether the Fed will cut rates once or twice by the end of 2024.

Powell expressed concerns about a large deficit being run at a time of full employment. “The level of debt we have is not unsustainable, but the path that we’re on is unsustainable,” Powell stated.

He urged policymakers to prioritize fiscal sustainability, warning that running large deficits during good economic times cannot continue indefinitely. “In the longer run, we’ll have to do something sooner or later, and sooner will be better than later,” he added.

Powell downplayed any worries about central bank independence if former President Donald Trump were to be re-elected, stating: “I am not focused on that at all. And that’s not just a talking point. I really think that we just keep doing our jobs.”

“Support for the Fed’s independence is very high where it really matters on Capitol Hill in both political parties,” he said. Powell concluded by stressing his focus on getting the job right and maintaining the current economic trajectory.

On the potential economic impacts of artificial intelligence, Powell admitted uncertainty.

“We know how to deal with credit risk and market dysfunction, but a big successful cyber attack on a financial market utility or a bank is a major worry,” he said.

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