Jerome Powell said today that the Federal Reserve has no choice but to face the US debt balance. The negative…
Jerome Powell said today that the Federal Reserve has no choice but to face the US debt balance. The negative balance is now $ 21.9 billion.
The US annual deficit has reached high prices of over $ 1 trillion.
In Powell speaking in Washington Economic Day today, “I’m very worried about that.”
Jerome Powell. Image from Shutterstock.
Referring to the long-term consequences that one can easily ignore when focusing on shorter policies, Powell says:
“The US federal government’s long-term fiscal, non-sustainability is not really a medium-term act that is relevant to our political decisions. “
” It is a long-term issue that we definitely need to face and ultimately have no choice but to face. “
The Federal Reserve has worked on a quantitative austerity policy. This is to counter the quantitative easing introduced in response to the global economic crisis. It has reduced the number of US government bonds it purchased by allowing these holdings to expire.
This means that the Federal Reserve gives less interest in their holdings. Interest that usually contributes positively to the central government debt. By increasing interest rates, the central government debt receives a higher interest expense, and adds the debt balance.
That being said, the Federal Reserve is impacting on the additional US debt less than the largest illegal state budget.
US Debt bomb approaching? Image from Shutterstock.
Wall Street legend Jeffrey Gundlach warned in December that the federal reserve seemed to be a “suicide mission” to raise interest rates while increasing US debt. A growing deficit can often be a signal for the federal reserve to cut interest rates instead of potentially complicating a problem.
In April 2018, banker and author Satyajit Das questioned whether the normalization process after years of quantitative easing to counteract the recession could “shut down a debt bomb”. Das wrote:
“A decade of too low global interest rates and abundant liquidity seem to have encouraged a spree of public and private debt collection.”
“Higher interest rates will exacerbate the risk of financial distress for highly indebted companies and state borrowers.”
That Powell is concerned about debt is not bad news for the markets. In fact, this makes further interest rate hikes less likely, as Powell will be concerned about further linking the US debt balance. It may even mean that the Federal Reserve considers an interest rate cut.
Selected images from Shutterstock.