Unsustainable debt will ripen sluggish economic growth: Dallas Fed president

Federal Reserve Bank of Dallas President Robert Kaplan told FOX Business on Wednesday that the United States is on an unsustainable path of debt growth, and predicted a big slowdown in the economy within the next two years.

“In the Dallas Fed we are estimating U.S. growth about 2.5 [percent], 2.75% in 2018,” he told Maria Bartiromo during an exclusive interview on “Mornings with Maria.” “Unfortunately we think growth will moderate next year and we think by 2020 we’ll be down to 1.75 [percent] to 2%.”

He said an aging workforce and sluggish productivity growth were factors, but also raised concerns about the nation’s trillion-dollar budget deficit.

“The stimulus from increasing debt to GDP, which this recent legislation did, can turn into a headwind because we think we are on an unsustainable rate of debt growth in the United States,” he said.

During its March meeting, the Federal Reserve responded to higher inflation and a strengthening labor market by raising its target range for the federal funds rate by a quarter-percentage point to 1.5% to 1.75%. Kaplan maintained the Fed’s forecast for two additional rate hikes in 2018.

“I think the path of rate increases is probably going to be flatter than people are accustomed to and one of the reasons is this moderating out year growth,” he said. “I think we should be increasing the fed funds rate [and] removing accommodation, but we have to do it very patiently and gradually because we’ve got a number of these structural headwinds that are not going away.”