Treasury Secretary Janet Yellen said Thursday that the ballooning national debt is manageable as long as it remains at a level close to the rest of the economy.
In an interview with CNBC, Yellen also noted that higher interest rates are adding to the burden as the United States manages its massive $34.7 trillion debt load.
“If the debt stabilizes relative to the size of the economy, we're in a reasonable position,” she told CNBC's Andrew Ross Sorkin during a live interview on Squawk Box. “The way I look at it is we have to look at the real interest cost of the debt. That's the real burden.”
Through fiscal year 2024, net interest costs on the debt were $601 billion — more than the government spent on health care or defense and more than four times what it allocated to education.
Multiple Congressional Budget Office reports have warned of rising debt and deficit costs, warning that the overall share of the national debt — currently about $27.6 trillion — will reach a new record high as a share of the total economy over the next decade. a contract.
The general share of the national debt as a share of GDP is about 97%, but it is expected to soon exceed 100% at current spending rates.
Yellen promoted President Joe Biden's plans to manage the situation.
She added: “In the budget presented by the President for the next fiscal year, he proposes to reduce the deficit by $3 trillion over the next decade.” “This is enough to keep the debt-to-income ratio stable, and this interest burden will stabilize.”
The budget deficit for 2024 is $1.2 trillion with four months remaining in the fiscal year. In 2023, the total deficit will reach $1.7 trillion.
The rise in debt financing costs came as the Fed raised interest rates to bring down inflation, which reached its highest level in more than 40 years in mid-2022. Inflation has eased since then, but the Fed has kept interest rates higher as it waits for more It is evidence that the rate of price increases is moving convincingly towards the central bank's target of 2%.
After this week's policy meeting, the Fed said it had seen “modest” progress on inflation but was not ready to start cutting interest rates. Yellen, the former chair of the Federal Reserve, 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 issue but noted that the United States was “enjoying the strongest recovery of any developed country, and our strong growth is actually lifting global growth.”
“It is clear that Americans are very concerned about the cost of living, and overcoming high costs of living remains a top economic priority for the president,” Yellen said during a lunch with the Economic Club of New York. “We know that there are areas of their budgets where Americans are having real difficulty making ends meet.”
