By Agence France-Presse
Outgoing Federal Reserve Chair Janet Yellen said on Wednesday she is “very worried” about the rising US debt level, but said it is up to Congress to find a way to address it.
Yellen sidestepped multiple questions from members of the Joint Economic Committee on the tax proposals advancing in the legislature, which are expected to increase the national debt by as much as $1.4 trillion in 10 years.
President Donald Trump’s administration has argued the tax cuts will pay for themselves by spurring economic growth, but economists are skeptical especially at a time when the economy is growing at a solid pace.
Yellen in her testimony on the economic outlook said the evidence for a link between tax cuts and investment and growth are not clear.
“I am very worried about the sustainability of debt trajectory,” she said, warning that the long-term budget projections “should keep people awake at night.”
The situation is projected to get worse as the US population ages, and as spending on health programs and social security “grow more rapidly than tax revenues” — which “should be a very significant concern.”
However, she declined to make any specific policy recommendations or offer comment on the current tax proposals
“The right way to address this is matter for you to decide.”
While Yellen acknowledged that the central bank will react to changes in fiscal policy and other factors — which could mean raising interest rates if a stimulus to the economy threatens to ignite inflation — she rejected the notion the Fed wants to put the brakes on economic growth.
Welcome strong growth
“The Fed is not trying to stifle growth,” she said. “We don’t have some cap on growth we’re trying to achieve.”
Monetary policymakers “would be delighted” with stronger growth that was sustainable, but the Fed has a mandate from Congress to worry about inflation trends, she said.
Boosting growth in the US economy will require increased productivity, and she said Congress can address that with investments in infrastructure, education, job training and innovation.
She reaffirmed that the Fed expects to raise interest rates only gradually. However, she steered clear of signaling a rate hike at the December policy meeting, which her designated successor, Jerome Powell, offered on Tuesday.
Yellen largely offered an upbeat assessment of the US economy, saying the growth rate has picked up the pace in recent months. She noted however that some groups are lagging behind, including African Americans, Hispanics and other minorities.
Despite the impact of two late summer hurricanes, economic growth “appears to have stepped up from its subdued pace early in the year,” she said.
The government released data Wednesday showing the economy grew by 3.3 percent in the third quarter, the second straight quarter with growth over three percent, which President Donald Trump has set as his goal. Even so GDP expansion for the full year is likely to be significantly slower.
Yellen noted that despite solid growth and an unemployment rate of 4.1 percent, six points below the 2010 peak, wage growth has been modest and inflation has continued to run below the Fed’s two percent target. The Fed’s preferred measure of year-on-year inflation was only 1.6 percent in September.
Yellen continues to believe the “surprisingly subdued” inflation is due largely to transitory factors, so that the rate will accelerate over the next year or two, but she has not ruled out the possibility that “something more persistent” is at work.
Trump earlier this month nominated Jerome Powell to replace Yellen, the first woman to lead the Fed. She will leave in February after just one term. No first-term US president has replaced a sitting Fed chair in 40 years.
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