Federal Reserve Chair Jerome Powell warned Wednesday that the U.S. is on an “unsustainable” fiscal path and called for a course correction days after the national debt topped $36 trillion for the first time ever.
“The U.S. federal budget is on an unsustainable path. The debt is not at an unsustainable level, but the path is unsustainable, and we know that we have to change that,” Powell said during an interview at the New York Times DealBook Summit.
Powell, a lifelong Republican first appointed lead the central bank by President-elect Trump and reappointed by President Biden, has repeatedly warned the U.S. is on an unsustainable fiscal path.
His latest comments come as Republicans ready for an intraparty battle over the potential fiscal impact of massive tax cuts in Congress, which is responsible for setting fiscal policy.
Speaker Mike Johnson (R-La.) and GOP leadership want to move quickly to craft a follow-up to the 2017 Tax Cuts and Jobs Act (TCJA) once Trump takes office and the GOP consolidates control in Washington.
Many provisions in Trump’s signature tax bill are set to expire in 2026, including individual tax rate cuts, a state and local tax (SALT) deduction cap and business tax breaks.
But a small coalition of budget hawks, which last year ousted former Speaker Kevin McCarthy (R-Calif.) over federal spending, will wield enormous power given a slim majority in the House.
Their influence could derail plans to use budget reconciliation to fast-track a tax reform bill as Republicans grapple with how to deliver Trump’s tax cuts without further accelerating the national debt, which has alarmed lawmakers on both sides of the aisle.
“We don’t need to pay the debt down. We don’t need to balance the budget. We just need the economy to grow faster than the debt. And that’s not happening,” Powell said.
“We’re running very large budget deficits at a time of full employment and strong growth, so we need to address that, and we’ve got to do it sooner or later, and sooner is better than later,” he added.
