It appears the Federal Reserve is starting to get a little worried about the state of the U.S. economy. In a recent interview, Jerome Powell, the chairman of the Federal Reserve, made some remarks about the economic outlook.
Powell stated that the U.S. economy is growing “unsustainably” because our GDP growth isn’t keeping up with our rising national debt levels. In his words, “the U.S. federal budget is on an unsustainable path” and “the debt is not at an unsustainable level, but the path is unsustainable.”
This warning comes as the stock market continues to hit new record highs and the job market remains strong. So why is the Fed chairman sounding the alarm?
The catalyst for Powell’s warning appears to be the staggering growth in the U.S. national debt. Recently, the national debt surpassed $36 trillion for the first time ever.
This means the U.S. government is spending far more money than it’s taking in through tax revenue. Instead, the government is relying on borrowing and money printing by the Federal Reserve to fund its spending.
Powell acknowledged this unsustainable debt path, saying:
“We don’t need to pay the debt down. We don’t need to balance the budget. We need to get the economy to grow faster than the debt, and that’s not happening.”
In other words, the Fed’s concern isn’t necessarily the total size of the debt but rather the fact that the debt is growing faster than the overall economy. This creates an imbalance that Powell believes is unsustainable in the long run.
The Fed may pressure policymakers to take steps to reduce the burden on monetary policy. But getting bipartisan agreement on fiscal reforms is notoriously difficult.
Preparing for What’s Ahead The Fed’s warning about the unsustainable debt trajectory is a red flag. While the economy may appear strong on the surface, the underlying debt dynamics pose risks.
Policymakers will likely need to make tough choices in the coming years to address these issues. And individuals will need to take proactive steps to shore up their personal finances and investment strategies.
By focusing on saving, reducing debt, diversifying your investments, and boosting your earning potential, you can help insulate yourself from potential economic turbulence ahead.