Why Janet Yellen isn’t worried about the national debt

“The statistic or indicator I look at most often when judging our fiscal policy is net interest as a share of GDP,” she said. told CNBC Monday, referring to the federal government’s net debt payments relative to U.S. gross domestic product. “Even as rates rise, we’re seeing rates remain at very reasonable levels.”

Yellen believes that according to Federal Reserve data, the federal government’s interest expenditure will account for 1.86% of GDP by 2022 data.This is consistent with the historical average going back to 1960 and slightly below 2%.

Yellen said she remains “not really worried” about the impact of recent federal spending plans, including the Chip and Science Act, which subsidizes semiconductor production and research, and the Infrastructure Act, which authorizes spending on roads, bridges and other infrastructure projects. Investment and Jobs Act – which will have an impact on the national deficit, arguing that the federal government just needs to “make sure we stay on a sustainable path.”

Still, the Congressional Budget Office warned in a June report that rising interest rates and the growing national debt could cause the federal government’s net interest payments to soar to 6.7% of GDP by 2053.

“Such high and rising debt levels will slow economic growth, drive up interest payments for foreign holders of U.S. debt, and pose significant risks to the fiscal and economic outlook; it could also cause lawmakers to hesitate in their policy choices. feel more restricted,” the report’s authors explained.

Some critics further warn of the potential impact of rising U.S. government debt.Mark Spitznagel, founder of hedge fund Universa Investments, said wealth In August, we were experiencing “the largest credit bubble in human history.”

“We have never seen such high levels of total debt and leverage in the system. This is an experiment,” he said. “But we know the credit bubble has to burst. We don’t know when, but we know they have to.”

Spitznagel points to record high total public household debt $17 trillion Federal Reserve data shows that non-housing debt hit a record high of $4.7 trillion in the second quarter, and the U.S. debt-to-GDP ratio was 120% data.

Yellen did acknowledge Monday that going forward, the federal government will need to “make sure” it gets the deficit under control or the national debt could become a problem.

“Of course, further deficit reduction is possible,” she added. “The president has proposed a series of measures that will reduce our deficit over time while investing in the economy, which is what we need to do going forward.”

auto workers union strike

The Treasury secretary was also asked about the UAW strike, which has affected Detroit’s Big Three – Ford, General Motors and Stellantis – and is beginning to cause concern among economists and investors. She expressed hope that the UAW and the Big Three can reach a “win-win agreement” as soon as possible and declined to discuss any potential impact on the economy at this stage.

“I think it’s too early to predict what this will mean for the economy. A lot depends on how long the strike lasts and who is affected,” she said.

Yellen acknowledged on Monday that hiring was cooling after companies struggled to find talent during the pandemic and the labor market was almost as strong as it has been in years. But overall, she said she believed the economy remained strong, despite the threat of worker strikes and the rising national debt.

“Look, we still have a good, healthy labor market. Consumer spending is still pretty strong. We’re seeing strong industrial production. I don’t see any signs that the economy is at risk of a recession,” she said. “It’s the best-case scenario in the world to see the economy continue to strengthen, the labor market to be strong, inflation to come down, that’s what we’re seeing.”