Fed Chair Jerome Powell is making it clear that he is worried about the current expansion of US debt – the total is $21.9 trillion, of which $16 trillion is owed by the public. This number is now increasing at a rate of about $1 trillion annually. The key concern is that because of the continued rate increases, the cost of that debt could start to be a burden that only increases with time, so the worried Fed has a solid base for this story.
According to Mr Powell, “it is a long-run issue that we definetely need to face…..will have no choice but to face.” The Fed made these comments as the annual US deficit reaches new sustained highs above $1 trillion, a fact that will be the problem of our generation and future generations as well. The notion that we are living with annual deficits of $1 trillion is something we now live with as we did in the past, however, the fact that this is economic expansion currently and the deficit continues to grow is alarming. The Wall Street Bond King, Jeffrey Gundlach said in December that the Fed seems to be on a suicide mission, raising rates while the government deficit increases as a share of GDP. Normally, when the deficit is expanding, the Fed would be lowering rates. Fitch Ratings suggested that the ongoing government shutdown could soon start to impact its ability to pass a budget and in the end could damage the US Triple-A rating…..this is of course a real concern.