The Federal Reserve may primarily deal with monetary policy and financial regulation, but Fed Chair Jerome Powell called out the U.S. healthcare system that’s contributing to a ballooning federal budget deficit during the Fed meeting press conference on Wednesday.
“It’s no secret: It’s been true for a long time that with our uniquely expensive healthcare delivery system and the aging of our population, we’ve been on an unsustainable fiscal path for a long time,” Powell said while answering a question by Yahoo Finance’s Myles Udland. “And there’s no hiding from it.”
Federal spending on health care (mostly Medicare and Medicaid) has risen from 14.4% of all federal outlays in 1990 to about 31% in 2018 — one of the main reasons the national debt is $21.5 trillion and growing. And the amount of money Americans spend on health care is likely to rise by about 5.5% per year for the next several years, according to government projections on health spending through 2026.
Comments like Powell’s are not something people at the Fed take lightly, as the agency has traditionally been careful to avoid overstepping its bounds. In his answer, Powell prefaced his comments on healthcare by noting that the Fed will continue to take this approach and “stay in [its] lane.”
“We don’t have responsibility for fiscal policy. But in the longer run, fiscal policy will have a significant effect on the economy,” said Powell. “So for that reason, my predecessors have commented on fiscal policy, but have commented at a high level, rather than get involved in particular measures.”
Powell has expressed concerns about unsustainable deficits before. At a symposium sponsored by the Federal Reserve Bank of Kansas City, the Chair expressed concern over the shrinking tax-base/larger-entitlement situation that comes from an aging population.
At Wednesday’s press conference, the Chair doubled down on these words and made a gentle recommendation to deal with the problem.
“In the end, we will have to face [the unsustainable path] and the sooner the better,” he said. “Also these are good times. This is the economy at nearly full employment. Interest rates are low — it’s a good time to be addressing these things. I just put that out there and leave it at that.”