MercoPress. South Atlantic News Agency

Fed chief Powell urged Congress to take action on rising US debt and deficit

“The debt is growing faster than the economy. It's as simple as that,” Powell said in response to a question.

Federal Reserve chief Jerome Powell urged Congress on Wednesday to take action on the rising US debt and deficit to ensure the continued growth of the American economy. Called before the Joint Economic Committee to discuss the economic outlook, the central bank chief stressed that it was not his role to give policy advice, before he gave diplomatically-worded policy advice.

“The debt is growing faster than the economy. It's as simple as that,” Powell said in response to a question.

“We're not in the business of advising you when or how to do it but it is inevitable that over time, we have to do it” or the tax dollars of future generations will be used to pay interest rather than for education, security, health.

The US budget deficit - which Powell called “unsustainable” - soared to just under US$1 trillion in the 2019 fiscal year, despite a growing economy and low interest rates.

Meanwhile, government borrowing is more than US$23 trillion and growing, and interest payments jumped 10% to US$572.8 billion in the year ended Sep 30.

Beyond the long-term health of the American economy, the central banker warned that the debt and deficit could limit the willingness of lawmakers to act should the United States face another downturn.

And Powell warned that the Fed's tools to respond to the next recession are limited: In past recessions, the Fed has cut the key lending rate by five full percentage points on average - but that is no longer possible since the rate has been cut back to a range of 1.5 to 1.75 per cent.

Fiscal policy is “a key part of the counter cyclical reaction” when the economy is in trouble, he said. But the rising debt and deficit “could restrain fiscal policymakers' willingness or ability to support economic activity during a downturn.”

Despite those warnings, in the first of back-to-back days of testimony before Congress, Powell said the US economy is likely to continue to grow though it faces continued risks from the global slowdown and trade disputes.

He repeated the message he delivered after the third rate cut in late September, saying policymakers will hold off on any further moves while they assess the impact of the rate cuts on the economy, as well as any new developments.

That message will not be welcomed by President Donald Trump, who has accused the Fed chief of incompetence and of undermining his efforts to supercharge the US economy.