WASHINGTON: Federal Reserve (Fed) Bank of Richmond President Tom Barkin says there will eventually be a “reckoning” if US debt continues to rise, but it’s difficult to know when that might happen.
Barkin, who was asked about total US public debt surpassing US$40 trillion, said the government can continue to borrow as long as the public continues buying the debt.
But, he added, there’s a risk investors could start to push back.
“There will be a reckoning on this as it goes forward. No one can tell you when,” Barkin said during an event in Charlotte, North Carolina.
“We’re a global currency, rule of law – all the reasons people keep buying the debt.
“But, you know, at some point, people stop buying your debt and that’s the risk out there.”
Barkin repeated remarks he made earlier this month in which he laid out an argument for holding interest rates steady in light of evidence that inflation is declining, while also acknowledging that officials may have to raise interest rates if price pressures become embedded.
The Fed left interest rates unchanged in July for the fifth consecutive meeting, though three officials dissented in favour of hiking rates by a quarter percentage point.
Barkin, who isn’t a voter this year, has said it’s difficult to know how much interest rates are weighing on the economy.
Speaking to reporters after the event, Barkin said the July rate decision was a “close call”.
He said one of the reasons for waiting to adjust rates is because officials would receive two more months of economic data before their next policy meeting on Sept 15 to Sept 16.
“So far, we’ve had one full set of data and we’ll get another full set of data and we’ll see what we learn,” Barkin said.
Policymakers from around the globe will head to Jackson Hole, Wyoming later this week for the Kansas City Fed’s annual economic symposium.
Fed Chairman Kevin Warsh is scheduled to deliver remarks tomorrow.
He’s under pressure to address criticism that he hasn’t been forthcoming about his views on the economy.
The Richmond Fed chief said the latest trade dispute with Canada was adding to uncertainty over how tariffs will affect prices and the economy.
“I don’t take the Canadian situation by itself as being any big change in the US posture, but I do think the broad question of whether we kind of know where the tariff rates are going to land or we don’t –that’s the bigger issue, and I’ve taken no signal yet on that issue,” he said. —Bloomberg
