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Janet Yellen: Trump’s Tax Cut Could Play a Negative Role in Next Downturn

Courtesy of Pam Martens.

Janet Yellen, Chair of the Federal Reserve, Taking the Oath at Her Senate Confirmation Hearing

Janet Yellen, Chair of the Federal Reserve, Taking the Oath at Her Senate Confirmation Hearing in 2013

During Janet Yellen’s last press conference as Federal Reserve Chair on Wednesday, Donna Borak, the Senior Economics Writer at CNN, asked Yellen a question regarding the proposed tax cut. Borak queried:

“To return back to the prospective tax bill questions, in your view at all is the Republican tax bill an ill-timed fiscal stimulus, and are you concerned at all it will wind up squandering the tools both the Congress and the Fed have when it comes time to dealing with the recession?”

Yellen answered as follows:

“So look, I will just say that it is up to the administration and Congress to decide on appropriate fiscal policy, and our job is to maintain our focus on employment and inflation. We continue to think, as you can see from the projections, that a gradual path of rate increases remains appropriate even with almost all participants now factoring in their assessment of the impact of the tax policy. You know, it is projected that the tax cut package will lead to additions to the national debt and boost, by the end of the horizon, the debt to GDP ratio. And I will say, and this is nothing new, this is something I’ve been saying for a long time, I am personally concerned about the U.S. debt situation.

“It’s not that the debt to GDP ratio at the moment is extraordinarily or worrisomely high, but it’s also not very low. And it’s projected, as the population continues to age and the baby boomers retire, that that ratio will continue to rise in an unsustainable fashion. So the addition to the debt, taking what is already a significant problem and making it worse is, it is of concern to me, and I think it does suggest that in some future downturn, which well could occur just for whatever reason, the amount of fiscal space that would exist for a fiscal policy to play an active role, it will be limited, may well be limited.”

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