The US deficit stands at $20 trillion and will rise to $30 trillion in a decade. That should be a reason for concern, according to the US Fed.
“I believe the Federal Reserve should be gradually and patiently raising the federal funds rate during 2018,” Dallas Federal Reserve Bank President Robert Kaplan said on Wednesday.
“History suggests that if the Fed waits too long to remove accommodation at this stage in the economic cycle, excesses and imbalances begin to build, and the Fed ultimately has to play catch-up.”
Kaplan’s words come after this week’s report by Goldman Sachs indicated that US debt will turn unsustainable under the Republican leadership. Kaplan previously worked for Goldman as vice chairman.
The new US budget pushed by Donald Trump’s administration envisages serious growth in military spending, and American debt could reach $30 trillion in just 10 years, according to some estimates.
“This projected increase in government debt to GDP comes at a point in the economic cycle when it would be preferable to be moderating the rate of debt growth at the government level… While addressing this issue involves difficult political considerations and policy choices, the US may need to more actively consider policy actions that would moderate the path of projected US government debt growth,” Kaplan said.
While recent concerns about the soaring US deficit are mostly aimed at Trump, the national debt has been surging independent of party politics during this century. Under the previous administration of Democrat President Barack Obama, the US deficit nearly doubled, rising by about $9 trillion to just under $20 trillion.
In January, one of the largest ratings firms in China, Dagong Global Credit Rating, cut the US sovereign rating from A- to BBB+ on concerns that the country can fail servicing the debt. Peru, Colombia and Turkmenistan have the same rating with Dagong.