Reuters
- The economy needs to recover before focus should shift to the US debt pile, Fed Chair Powell said.
- Low rates ensure that the current level of debt isn't an immediate concern, he added.
- There will be a time to put debt back on a sustainable path, but "that time is not now," he said.
- See more stories on Insider's business page.
Placing the economy on track for a full recovery takes precedent over cutting down on the US government's surging debt, Federal Reserve Chair Jerome Powell said.
The federal debt pile exploded over the past year as the government spent trillions on economic relief and measures to slow the coronavirus' spread. Fears surrounding the shortfall were fairly muted earlier in the crisis but have since been revived as the country nears an end to the pandemic.
Calls for fiscal austerity grew louder still following reports that the Biden administration is planning a $3 trillion spending package on infrastructure and climate reforms. The Congressional Budget Office forecasted earlier this month that, even without the $1.9 trillion stimulus deal approved on March 11, the federal debt will reach 102% of GDP by the end of 2021 and nearly double to 202% by 2051.
The path of government debt is unsustainable, but its current level isn't cause for major concern, Powell said in a Wednesday interview with NPR.
"Given the low level of interest rates, there's no issue about the United States being able to service its debt at this time or in the foreseeable future," he said.
There will come a time when the economy has rebounded that debt will need to be put on a sustainable path, "but that time is not now," the Fed chair added.
The Federal Open Market Committee elected last week to hold interest rates near zero and maintain its current pace of asset purchases. Powell said in a follow-up press conference that, despite hopes for a strong recovery this year, it's "not yet" time to pull back on its ultra-easy monetary policy.
Still, updated economic projections from Fed officials show a markedly more optimistic outlook for the future. The central bank now sees unemployment falling to 4.5% by the end of the year and gross domestic product growing 6.5% in 2021, up from the prior estimate of 4.2%.
Looking back on how the Fed responded to the pandemic and its economic fallout, Powell likened the situation to Dunkirk and emergency measures taken some eight decades ago.
"It was time to get in the boats and get the people, not to check the inspection records and things like that, just get in the boats and go. And that's what we did," Powell said.
He continued: "I think overall it was a very successful program and I think history will treat it well. But I'm sure that we'll learn some things we could do better."