The $23 trillion debt leaves the US with fewer tools to fight a recession, Fed warns Congress

• Mounting government debt could hold back congressional efforts to fight a downturn in the US economy, Federal Reserve Chairman Jay Powell warned Tuesday.
• Relatively low interest-rate levels could leave the central bank with less room to help stimulate growth in the event of a downturn.
• The federal deficit typically falls during periods of strong economic growth, but recent policies have driven it toward historic highs.
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Mounting government debt could hold back congressional efforts to fight a downturn in the US economy, Federal Reserve Chairman Jay Powell warned Tuesday.

In prepared remarks before the House Financial Services Committee, Powell said that already low borrowing costs mean Congress would play a particularly important role in the case that growth weakened.

"Putting the federal budget on a sustainable path when the economy is strong would help ensure that policymakers have the space to use fiscal policy to assist in stabilizing the economy during a downturn," he said.

The Fed lowered interest rates three times last year as global growth slowed and trade tensions escalated, bringing the target range to between 1.5% and 1.75%. Those relatively low levels could leave the central bank with less room to help stimulate growth in the event of a downturn.

The US economy is expected to continue to slow this year but remains on solid footing, with humming consumer activity and the unemployment rate at its lowest level in decades. That makes it an ideal time for Congress to address red ink, Powell added.

The federal deficit typically falls during periods of strong economic growth, but recent policies have driven it toward historic highs.

President Donald Trump on Monday suggested steep government spending cuts in a 2021 budget proposal, which was viewed as a political document that would not be implemented. A Republican-led tax-cut package and bipartisan spending measures under Trump have pushed the debt to above $23 trillion.

The nonpartisan Congressional Budget Office projects that the deficit will jump past $1 trillion this year. That would mark the first time it has hit that level since 2012, when a series of costly stimulus measures were in place to help the economy recover from the Great Recession.