Fed Chair Powell: Cutting discretionary federal spending will not fix US debt problem

To make real headway on reducing government debt and deficits, Powell said, politicians must reduce spending on the largest parts of government outlays: Medicaid, Medicare, Social Security and the rising cost of interest payments.

“Those are issues that can only be touched on a bipartisan basis,” Powell said. “Neither party can figure out what to do without both parties being at the table. So that’s critical.”

President Donald Trump has promised not to make cuts to broadly popular health and social welfare programs, and is counting on revenue raised from his large tariffs to help pay for planned tax cuts currently under consideration in Congress.

The US had a US$1.31 trillion budget deficit in the first six months of fiscal 2025, up 23 per cent from a year earlier. The large majority of the federal government’s outlays during that period went to cover nondiscretionary spending on healthcare programs, Social Security and interest payments, data from the US Treasury shows.