Powell, Federal Reserve Chief, Warns of ‘Unsustainable Fiscal Path’ Amid Rising Debt Burden in the United States

Federal Reserve Chair Jerome Powell cautions that the United States is treading an “unsustainable fiscal path,” noting that the current debt is surpassing the overall economic growth. 

During a January 4 interview on 60 Minutes, Powell emphasised that it is now overdue for elected U.S. officials to engage in a mature conversation about diminishing the economy’s debt levels.

“In the long run, the U.S. is on an unsustainable fiscal path. The U.S. federal government is on an unsustainable fiscal path, and that just means that the debt is growing faster than the economy,” Powell stated.

Bitcoin faced a setback towards the end of the previous week as the Federal Reserve opted to maintain interest rates within the range of 5.25%–5.50%. The central bank extinguished expectations of rate cuts in March, asserting the necessity for “greater confidence” in resolving inflationary pressures before contemplating any adjustments.

Powell reaffirmed this stance in the interview, emphasising that the Federal Reserve is awaiting substantial evidence of economic strength before entertaining the idea of rate cuts.

Powell remarked “It’s not likely that this committee will reach that level of confidence in time for the March meeting, which is in seven weeks.” He noted that “almost all” Federal Reserve board members anticipate rate cuts at some point this year.

The Federal Reserve Chair emphasised the need for increased confidence before taking the significant step of initiating interest rate cuts. Such cuts are viewed as favourable for risk assets, including cryptocurrencies, and growth-oriented tech giants like Apple, Nvidia, and other prominent tech stocks.

Reducing rates by the Federal Reserve results in more affordable capital for borrowing, generally leading to heightened spending and an increased risk appetite across the broader economy.

Powell expressed his belief that inflation would decline in the initial half of the year, indicating that the central bank would reassess its strategy at the upcoming Federal Open Market Committee meeting in March.

“The kinds of things that would make us want to move sooner would be if we saw weakness in the labor market or if we saw inflation really persuasively coming down,” he added.

It all makes for a very interesting time come mid year in the market for risk-on assets, particularly BTC, given a rate cut could fall just a few months after the Halving.