Treasury Secretary Janet Yellen said Thursday that the expansion of the national debt is manageable as long as it remains at current levels relative to the rest of the economy.
In an interview with CNBC, Yellen noted that high interest rates are increasing the burden on the United States to manage its massive $34.7 trillion debt.
“We’re in a reasonable place if the debt is stable relative to the size of the economy,” she said in a live “Squawk Box” interview with CNBC’s Andrew Ross Sorkin. “My view is you have to look at the real interest cost of the debt. That’s the real burden.”
Net interest costs on the debt for fiscal year 2024 will be $601 billion, more than the government spends on health care or defense and more than four times the amount it devotes to education.
Multiple Congressional Budget Office reports have warned that the costs of debt and deficits are soaring, warning that over the next decade the public burden of the national debt — currently about $27.6 trillion — will hit a record high as a share of the total economy.
Public debt as a percentage of GDP is around 97%, but at current spending rates it is expected to soon exceed 100%.
Yellen praised President Joe Biden’s plan to manage the situation.
“The president is proposing $3 trillion in deficit reduction over the next decade in his budget proposal,” she said. “That’s enough to basically stabilize the debt-to-income ratio, and that will stabilize the interest expense.”
The budget deficit for fiscal year 2024 stands at $1.2 trillion with four months left in the fiscal year. In 2023, the deficit totaled $1.7 trillion.
The rise in debt financing costs comes as the Federal Reserve raised interest rates to tamp down inflation, which hit its highest level in more than 40 years in mid-2022. Inflation has since fallen, but the Fed is keeping its benchmark rate high as it awaits more evidence that price growth is steadily creeping back toward the central bank’s 2% target.
The Fed said after its policy meeting this week that it had seen “modest” progress on inflation but was not ready to start cutting interest rates. Former Fed Chair Janet Yellen declined to comment on the central bank’s actions.
Speaking at an event later in the day, Yellen said the administration was aware of the inflation problem, but noted that the United States is “enjoying the strongest recovery among advanced economies, and strong U.S. growth is actually boosting global growth.”
“It’s clear that Americans are very concerned about the cost of living, and how to control the rising cost of living remains the president’s top economic priority,” Yellen said at a luncheon with the Economic Club of New York. “We know there are areas of the budget where Americans are really struggling to make ends meet.”
