Richmond Federal Reserve President Thomas Barkin cautioned that the United States will eventually face a "reckoning" if its national debt continues its upward trajectory, though predicting the exact timing of such an event remains elusive. When questioned about the total public debt surpassing the $40 trillion mark, Barkin noted that government borrowing can persist as long as the public remains willing to purchase Treasury bonds. However, he added that there is a tangible risk investors might eventually begin to resist further lending.
"Over time, this is going to get a reckoning. But no one can tell you when," Barkin remarked during an event in Charlotte, North Carolina, on Tuesday. "We have the global currency, the rule of law — these are all reasons people continue to buy our bonds. But, you know, at some point, people will stop buying your bonds, and that is the risk that exists."
Barkin reiterated comments he made earlier this month, laying out the case for holding interest rates steady in light of evidence that inflation is cooling, while also acknowledging that officials may need to raise rates if price pressures prove persistent. The Fed's July meeting marked the fifth consecutive hold on rates, despite three dissenting officials who favored a 25-basis-point hike. Barkin, who holds no voting rights this year, said it is difficult to gauge the extent of the impact rates are having on the economy.
Following the event, Barkin told reporters that the July rate decision was a "close call." He explained that one reason for deferring any adjustment was that officials would have two more months of economic data before the next policy meeting on September 15-16. "We have gotten one full set of data so far, and we will get another full set, and we will see what we can learn from that," Barkin said.
Policymakers from around the globe are set to gather later this week in Jackson Hole, Wyoming, for the Kansas City Fed's annual economic symposium. Fed Chair Kevin Warsh is scheduled to speak on Friday, facing pressure to address criticism that he has not been forthcoming about his economic views. Barkin noted that the latest trade dispute with Canada has added to uncertainty about how tariffs will affect prices and the economy. "I don't think the Canada situation itself is going to have any major impact on the U.S. position, but I think whether we have a general idea of where tariff rates are going to end up — that is the bigger question, and I haven't received any signals on that yet," he said.
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