Federal Reserve Chairman Jay Powell told lawmakers Wednesday that Congress needs to get the deficit under control while the economy is still growing and the outlook remains positive. Failing to do so, he warned, could make it harder to fight the next downturn.
Powell said that the Fed, which has cut interest rates three times this year, would not likely cut rates again unless economic conditions deteriorate. The interest rate benchmark is currently set at a range of 1.5% to 1.75%, leaving little room for further cuts, and Powell told the Joint Economic Committee that “the current low-interest-rate environment may limit the ability of monetary policy to support the economy.”
That means that lawmakers may have a bigger role to play in fighting the next downturn through fiscal policy – a task complicated by the growing deficit. “The federal budget is on an unsustainable path, with high and rising debt,” Powell said. “Over time, this outlook could restrain fiscal policymakers’ willingness or ability to support economic activity during a downturn.”
Powell also pushed back against President Trump’s comments about negative interest rates earlier this week. Speaking at the Economic Club of New York Tuesday, Trump said that the U.S was at a disadvantage to countries that have negative interest rates and thereby generate revenue from their debt. “Give me some of that money. I want some of that money,” Trump said, before complaining that “our Federal Reserve doesn’t let us do it.”
Powell said Wednesday that negative rates “would certainly not be appropriate in the current environment.”