Barkin’s comments add a senior Fed voice to a debate that has already unsettled bond markets this month, following the sharp Treasury sell off that forced an extraordinary buyback intervention and pushed long dated yields to multi decade highs. While he stopped short of predicting a near term crisis, his direct warning that investors could eventually stop buying US debt echoes concerns already raised by figures across Wall Street this year. The comments carry additional weight given they came alongside his restated preference for holding rates steady on evidence of easing inflation, while leaving the door open to a hike if price pressures become embedded, a combination that leaves the rate path looking data dependent rather than settled. Coming just ahead of Fed Chair Warsh’s Jackson Hole keynote on Friday, the remarks are likely to keep both fiscal sustainability and the rate outlook in focus this week.
Info via Bloomberg.
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Barkin isn’t calling the top on US debt, he’s just pointing out that markets, not policymakers, will be the ones to call it.
Summary:
- Richmond Fed President Tom Barkin says there will eventually be a “reckoning” if US debt continues to rise, though the timing is difficult to predict
- Asked about total US public debt surpassing $40 trillion, Barkin said the government can keep borrowing as long as the public keeps buying that debt
- He warned there is a real risk investors could eventually push back, saying “at some point, people stop buying your debt and that’s the risk out there”
- Barkin repeated his argument for holding interest rates steady given evidence that inflation is declining
- He acknowledged officials may need to hike rates if price pressures become embedded rather than continuing to ease
- Comments come days ahead of Fed Chair Kevin Warsh’s keynote address at the Jackson Hole symposium on Friday
Federal Reserve Bank of Richmond President Tom Barkin has warned that continued growth in US government debt will eventually force a reckoning, though he said it remains difficult to predict exactly when that point will arrive. Asked directly about total US public debt having surpassed $40 trillion, Barkin said the government can keep borrowing for as long as investors continue purchasing that debt, but cautioned that appetite cannot be assumed indefinitely.
“At some point, people stop buying your debt and that’s the risk out there,” Barkin said, offering one of the more direct warnings from a sitting Fed official on the sustainability of US borrowing in recent months.
The remarks land at a sensitive moment for bond markets. Long dated Treasury yields climbed to their highest levels in nearly two decades earlier this month, prompting an extraordinary intervention from the Treasury Department in the form of an expanded debt buyback programme aimed at calming the sell off. That episode has reinforced concerns among analysts and fiscal watchdogs that rising deficits and higher borrowing costs risk feeding into each other, with several prominent Wall Street figures warning in recent weeks that a debt reckoning of some kind is increasingly plausible.
Barkin’s comments on debt sustainability came alongside remarks on the near term policy outlook. He repeated his argument for holding interest rates steady, pointing to evidence that inflation is continuing to decline. At the same time, he acknowledged that Fed officials may need to raise rates again if price pressures show signs of becoming embedded in the economy rather than continuing to ease, a caveat that leaves the door open to further tightening even as his base case remains a hold.
The comments come just days before Fed Chair Kevin Warsh delivers his first keynote address as chair at the Jackson Hole Economic Policy Symposium on Friday, an appearance markets are treating as the most significant signal ahead of the September policy meeting. Barkin’s remarks add a fiscal dimension to the debate heading into that event, underscoring that questions about the sustainability of US government borrowing are increasingly running alongside, rather than separate from, the conversation about where interest rates go next.
This article was written by Eamonn Sheridan at investinglive.com.