Jerome Powell Says the Concept of MMT Is ‘Just Wrong’

(Bloomberg) -- Jerome Powell just ripped proponents of modern monetary theory and threw cold water on the idea that the Federal Reserve would ever help out combating the impact of spiraling deficits by keeping interest rates low.

MMT -- as the concept is dubbed -- argues that because America borrows in its own currency, it can always print more dollars to cover its obligations. As a result, the thinking goes, the U.S. can always run sustained budget deficits and rack up an ever-increasing debt burden. Helping grease the wheels for some MMTers is the expectation that the Fed would keep rates low to contain the cost of servicing America’s obligations.

“The idea that deficits don’t matter for countries that can borrow in their own currency I think is just wrong,” the Fed chair said in response to a question during his congressional visit Tuesday. The “U.S. debt is fairly high to the level of GDP -- and much more importantly -- it’s growing faster than GDP, really significantly faster. We are going to have to spend less or raise more revenue.”

The U.S. deficit is on course to top $1 trillion in the coming years, according to the Congressional Budget Office. Total public debt climbed to more than $22 trillion as of Feb. 11, according to the Treasury Department.

“And to the extent that people are talking about using the Fed -- our role is not to provide support for particular policies,” Powell said. “Decisions about spending, and controlling spending and paying for it, are really for you.”

To contact the reporter on this story: Liz Capo McCormick in New York at emccormick7@bloomberg.net

To contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net, Boris Korby, Mark Tannenbaum

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