If Congress does not reign in the ballooning budget deficit, inflation in the U.S. will begin to rapidly increase, former Federal Reserve Chairman Alan Greenspan warned on Thursday.
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"Unless we bring those extraordinary budget deficits under control, history tells us this is going to be a much more rapid rate of price increases than we’ve seen," Greenspan told FOX Business.
The Fed's preferred inflation metric has remained persistently low, but underlying prices picked up in January, with the so-called core CPI ticking up to 2.3 percent in the 12 months through January.
The warning from Greenspan, who led the Fed from 1987 to 2006, comes as the U.S. federal debt has grown by about $3 trillion since President Trump took office. At the beginning of February, Trump proposed a staggering $4.8 trillion budget that would be funded in part by cuts on Medicare and Medicaid.
A number of Democratic presidential candidates are also campaigning on a slate of multitrillion-dollar plans, including Medicare-for-all, aimed at transforming the country and its economy.
"This is going to be a very significant problem," Greenspan said. "Nobody wants to cut spending, or raise taxes. But if you look at the data that the Congressional Budget Office put out, we need very significant changes."
According to a recent Congressional Budget Office report, the U.S. government's budget deficit is projected to surpass $1 trillion in 2020. It would mark the first time since 2012 that the deficit has topped $1 trillion, alarming some economists.
While testifying before Congress at the beginning of the month, Fed Chair Jerome Powell sounded the alarm on the rising deficit, calling on lawmakers to reduce it to ensure the U.S. central bank could respond adequately in the case of an economic downturn.
“Putting the federal budget on a sustainable path when the economy is strong would help ensure that policymakers have the space to use fiscal policy to assist in stabilizing the economy during a downturn,” he said. “A more sustainable federal budget could also support the economy’s growth over the long term.”