Federal Reserve Chairman Jerome Powell said Tuesday that the idea that government deficits don’t matter, an idea endorsed most prominently by outspoken Rep. Alexandria Ocasio-Cortez, D-N.Y., is “just wrong.”
“The idea that deficits don’t matter for countries that can borrow in their own currency I think is just wrong,” Powell said in testimony before the Senate Banking Committee. “U.S. debt is fairly high as a level of [economic output] and more important than that, it’s growing faster than [economic output],” said Powell. “We’re going to have to either spend less or raise more revenue.”
Powell also pushed back against the suggestion that the Fed could pay for the “Green New Deal” favored by Ocasio-Cortez, or other new government programs.
“[T]o the extent people are talking about using the Fed, our role is not to provide support for particular policies,” Powell said. Instead, he noted, the Fed’s mandate is to ensure low unemployment and stable prices.
When asked about Powell’s remarks, Ocasio-Cortez responded: “I’d have to take a look at specifically the statement he made, but Fed chairs are appointed and they have their own frameworks for approaching issues, it doesn’t always mean that it’s objectively the right thing.”
The New York Democrat, who sits on House Financial Services Committee, said she was uncertain whether she’d be able to question the Fed chairman when he appears before that panel on Wednesday. Former Trump attorney Michael Cohen is scheduled to testify before the House Oversight and Government Reform Committee — the other panel she sits on — at the same time.
The topic came up on Tuesday as Powell was asked about Modern Monetary Theory, an economic theory that says economies should rely on spending and tax decisions, rather central bank monetary policy, to stabilize economies in times of crisis.
The Fed chairman admitted he’s not familiar with MMT, which has recently gained popularity among some Democratic politicians and activists as a justification for deficit spending.
“I haven’t really seen a carefully worked out description of what is meant by MMT … it may exist but I haven’t seen it,” said Powell, though he added that he has “heard some pretty extreme claims attributed to that framework, and I don’t know whether that’s fair or not.”
Powell added that he believes deficits do matter, and that the amount of debt the U.S. owes, and the speed with which it’s growing, poses a major long-term challenge to the economy.
