Fed Chair Powell warns Congress that $1 trillion budget deficits are unsustainable

Source: Washington Post

Federal Reserve Board Chair Jerome H. Powell told Congress on Tuesday that now would be a good time to reduce the federal budget deficit, which is expected to top $1 trillion this year.

“Putting the federal budget on a sustainable path when the economy is strong would help ensure that policymakers have the space to use fiscal policy to assist in stabilizing the economy during a downturn,” Powell said in testimony to the House Financial Services Committee.

In past recessions, the Fed has played a large role in reviving the economy by sharply cutting interest rates. But Powell has been warning lawmakers that the central bank won’t have much ammunition left to fight the next downturn because interest rates are so low (the benchmark rate is just below 1.75 percent, far below rates above 5 percent in the past).

More government spending is likely to be needed to aid the economy in the next recession.

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