Latest News

National News

US urged to tackle $1 trillion deficit

US Federal Reserve Chairman Jerome Powell has urged Congress to tackle the growing budget deficit, which is nearing $US 1 trillion.

In testimony to the House Budget Committee Powell noted that a large deficit will make it harder for Congress to cut taxes or boost spending when the next recession hits.

That is a concern because, with the benchmark interest rate already low, the Fed has a limited ability to respond to downturns.

"It's very important that Congress be able to support the economy because we won't have as much room to cut," he said.

Powell's remarks came two weeks after the Fed cut its short-term rate to a range of just 1.5 per cent to 1.75 per cent, its third cut this year.

The Fed took those steps to offset slowing global growth and the drag created by the US-China trade war.

Both have caused businesses to cut back on investment spending and have driven down factory output.

Still, Powell also emphasised his view that the economy is likely to keep growing, with little sign of a bubble in stocks or other assets that could later burst..

Under questioning about the budget deficit, Powell acknowledged that the federal government still had some room to boost the economy through tax cuts or more spending, should a downturn arrive.

Some Democratic members of the committee defended Powell from attacks levelled by President Donald Trump, who criticised the Fed in a speech for not cutting rates further. Trump has also called Fed officials "boneheads" and questioned whether Powell or China's President Xi Jinping is a bigger enemy.

"The president's repeated attacks on this institution are unacceptable and dangerous," John Yarmouth, Democrat from Kentucky and Chairman of the House Budget Committee, said.

© AP 2019