During an interview with Bloomberg on Monday, Treasury Secretary Janet Yellen stated that because interest rates are lower than they were in prior decades even with rate hikes, “we can probably manage and have a fiscally sustainable path with [a] somewhat higher ratio of debt to GDP.”
Yellen said that President Joe Biden’s proposed budget “would hold [what I see as] the key metric that summarizes the burden of deficits as being its interest cost, and the President’s plan would hold interest costs at historical levels and not allow them to rise above that.”
Bloomberg host and Chief Political Correspondent Annmarie Hordern then asked, “The federal deficit, though, now, is at a level we really don’t see outside of recessions. Is anyone in Washington seriously concerned about this, real conversations about bringing debt back to a sustainable path?”
Yellen answered, “Well, as I said, the interest cost of the debt is a good way to measure its burden. Generally, interest rates have been lower, in spite of recent increases, they have been lower than they were in past decades. And that means that metrics like the ratio of debt to GDP, we can probably manage and have a fiscally sustainable path with [a] somewhat higher ratio of debt to GDP. But it’s important to make sure that the real interest burden of the debt, which is a measure of the burden it’s placing on our economy, we have to bring — make sure that that stays in historically normal level.”
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