Treasury Secretary Janet Yellen said Thursday that rising national debt is manageable as long as it remains at its level relative to the rest of the economy.
In a CNBC interview, Yellen also noted that high interest rates are adding to the burden as the U.S. deals with its massive $34.7 trillion debt burden.
“If debt stabilizes relative to the size of the economy, we’ll be in a reasonable place,” she told CNBC’s Andrew Ross Sorkin during a live interview with “Squawk Box.” “The way I see it is that we should look at the actual interest cost of the debt. That’s actually the burden.”
In fiscal year 2024, net interest costs on the debt totaled $601 billion — more than the government spent on health care or defense and more than four times what it allocated on education.
Multiple reports from the Congressional Budget Office have warned of the rising costs of debt and deficits and warned that the public share of the national debt – currently about $27.6 trillion – will reach a new record as a share of the overall economy over the next decade will be decade.
The public sector’s share of national debt to GDP is around 97%, but at current spending rates it is expected to soon exceed 100%.
Yellen pointed to President Joe Biden’s plans to get the situation under control.
“In the budget the president has submitted for the coming fiscal year, he proposes $3 trillion in deficit reduction over the next decade,” she said. “That would be enough to keep the debt-to-income ratio fundamentally stable, and that interest burden would be stabilized.”
The budget deficit for 2024 is $1.2 trillion with four months remaining in the fiscal year. In 2023, the deficit totaled $1.7 trillion.
The rising cost of financing the debt comes as the Federal Reserve has raised interest rates to reduce the inflation rate, which had reached its highest level in more than 40 years in mid-2022. Inflation has fallen since then, but the Fed has kept interest rates higher as it waits for more evidence that the rate of price increases is convincingly moving back toward the central bank’s 2% target.
After its policy meeting this week, the Fed said it had seen “modest” progress on inflation but was not ready to start cutting rates. Yellen, a former Fed chair, declined to comment on the central bank’s actions.
At an event later in the day, Yellen said the administration was aware of the inflation problem, but noted that the U.S. is “enjoying the strongest recovery of any developed nation and our strong growth is really boosting growth around the world.”
“Americans are clearly very concerned about the cost of living, and addressing the high cost of living remains a top economic priority for the president,” Yellen said at a lunch with the Economic Club of New York. “We know that there are areas of their households where Americans are really struggling to make ends meet.”
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2024-06-13 19:53:03
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