By Ann Saphir
(Reuters) – Federal Reserve Chair Jerome Powell on Wednesday reiterated the long-held view of Fed chairs going back decades that growth in the U.S. federal debt needs to be reined in, but he suggested that politicians are going about it the wrong way.
“We’re running very large deficits at full employment, and this is a situation that we very much need to address” Powell said at an event at the Economic Club of Chicago.
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“All of this domestic discretionary spending, which is essentially where 100% of the conversation is, is small as a percentage of federal spending and is declining … When people are focusing on cutting domestic spending, they’re not actually working on the problem.”
Powell did not specifically mention Elon Musk’s Department of Government Efficiency, which has drawn headlines for large cuts to the federal government workforce, among other efforts to reduce the federal government’s discretionary spending. But his remarks appeared to dismiss that kind of push as largely irrelevant to federal debt and deficit reduction.
“So much of the dialogue that the politicians offer is about domestic discretionary spending, which is not the issue,” Powell said.
To make real headway on reducing government debt and deficits, Powell said, politicians must reduce spending on the largest parts of government outlays: Medicaid, Medicare, Social Security and the rising cost of interest payments.
“Those are issues that can only be touched on a bipartisan basis,” Powell said. “Neither party can figure out what to do without both parties being at the table. So that’s critical.”
President Donald Trump has promised not to make cuts to broadly popular health and social welfare programs, and is counting on revenue raised from his large tariffs to help pay for planned tax cuts currently under consideration in Congress.
The U.S. had a $1.31 trillion budget deficit in the first six months up fiscal 2025, up 23% from a year earlier. The large majority of the federal government’s outlays during that period went to cover nondiscretionary spending on healthcare programs, Social Security and interest payments, data from the U.S. Treasury shows.
(Reporting by Ann Saphir in Berkeley, California; Editing by Matthew Lewis)
