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Abstract: 

How big a threat does the soaring federal debt pose to the economy? Is the rising federal debt causing angst to anyone either in Congress or in the bond market? How seriously is the Federal Reserve Board rethinking its 2% inflation target and the composition of its balance sheet, and to whom does it matter? With interest rates below historic norms and the federal debt large and rising, how will Washington respond to the next recession? Are we in for a prolonged trade war with China? Can a polarized Congress make any progress on addressing long-term problems of inadequate investment in public infrastructure and human capital, rising health care costs, climate change, or widening inequality? And what difference does all this make to state and local governments? David Wessel is a senior fellow in economics studies at the Brookings Institution and director of the Hutchins Center on Fiscal and Monetary Policy. This article is based on his keynote address at the 36th Annual Conference of the National Federation of Municipal Analysts held in Charleston, South Carolina, May 7–10, 2019. Kurt Forsgren is managing director at S&P Global Ratings and annual conference chair for the 36th NFMA conference. The conference proceedings are being published in a special double issue of Municipal Finance Journal, as Volume 40, Number 4 and Volume 41, Number 1.

Keywords: U.S. federal debt, inflation target rate, interest rates, trade war, public infrastructure

Affiliations:  1: Brookings Institution; 2: S&P Global Ratings.