Federal Reserve Chairman Jerome Powell has issued a stark warning about the fiscal health of the United States. While the US national debt burden of RM167 trillion (USD 39 trillion) has not directly collapsed the country’s financial system, the direction the debt is heading is far from being controlled and requires urgent action from policymakers.
Powell stressed that the US debt is still manageable, but the trajectory of debt growth is unsustainable. “If we don’t act quickly, the end result will definitely not be good,” he said in a speech to Harvard economics students.
He distinguished between the amount of debt that already exists and the rate of debt growth that is growing faster than the country’s economy. Federal government debt is growing faster than Gross Domestic Product (GDP), making the debt-to-GDP ratio continue to rise. According to him, this is the true definition of fiscal unsustainability.
Interest payments on the national debt are expected to exceed RM4.3 trillion (USD 1 trillion) by fiscal year 2026, almost three times the RM1.5 trillion (USD 345 billion) paid in 2020. In the first three months of the current fiscal year, interest payments have reached RM1.16 trillion (USD 270 billion), exceeding national defense spending for the same period. This indicates real pressure on budget options, although not yet at the point of collapse.
However, Powell did not advocate a massive debt repayment. The solution he proposed is more realistic and achievable if there is political will. “We do not need to repay the debt in full. What is needed is to achieve a primary balance and ensure that the economy grows faster than the debt,” he said.
However, he also admitted that fiscal issues are not within the jurisdiction of the Federal Reserve. His warnings are often ignored by a more politically engaged Washington. Powell deliberately maintains the Fed’s role in maintaining price stability and employment, without getting involved in fiscal management.
But it goes against the Fed’s policy of facilitating cheap loans that have fueled debt growth. JPMorgan warns that reducing the US government debt will not be as easy as it seems, especially because of the close link between Fed policy and Treasury funding needs. Bridgewater’s Ray Dalio describes the peak of the problem as an “economic heart attack,” in which government spending is cut back because of the debt’s interest burden.
Former Fed Chair Janet Yellen voiced similar concerns earlier this year, arguing that rising debt could weaken the Fed’s ability to tackle unemployment and inflation. But the warning also risks being used as a pretext for spending cuts that would hurt the most vulnerable.
The national debt does require serious attention. But that attention should be based on an honest assessment of the costs and benefits, not just a blanket warning without concrete steps. Acting too drastically could destabilize the economy as badly as the debt itself.
Powell’s term as Fed Chair ends in May 2026. His fiscal warning, delivered not in Washington but at Harvard, may have been the clearest statement of his tenure: The debt is still manageable, as long as the direction is quickly corrected. Otherwise, “the outcome will not be good.”
