Tuesday, June 25, 2019
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Alan Greenspan's warning about the US deficit

The former governor of the Fed says Washington should react immediately, even if inflation remains for the moment below expectations.

If most of the seers are green, the United States should quickly address the issue of their deficit. In any case, this is the opinion of the former governor of the Fed, Alan Greenspan. The economist, who chaired the federal reserve for nearly twenty years, from 1987 to 2006, and is now 92, judges in an interview with Bloomberg that the current situation is " extremely unbalanced. And he warns, " politically, budget deficits are not very important. But what is it, are the consequences. "

The US deficit has exploded under the Trump administration, as a result of increased public spending and the costs of tax reform, even though it slightly supported growth last year. In the first full fiscal year of Donald Trump's term, the federal deficit rose to $ 779 billion, the highest since 2012. And it is expected to exceed $ 1,000 billion by 2022, according to the Parliamentary Budget Office.

Controlled inflation

" It is only once budget deficits lead to inflation that policies react Says Alan Greenspan. However, it is time to act, according to him, since the " we see the first signs of stagflation Although he acknowledges that " we are not there yet. This phenomenon occurs when inflation rises and growth decelerates. Some economists think it could happen before the end of the year.

The latest figures are however rather positive: in January, inflation remained under control, at 1.6% year-on-year, the lowest increase since June 2017. Energy prices are indeed putting pressure down. Consumer prices remained stable compared to the previous month, while analysts expected a slight acceleration, and well below the target of 2% posted by the Fed.

Nicolas Rauline

New York Office


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