Former Secretary of the Treasury Steve Mnuchin warned that the U.S. economy would have a significant downturn this year amid concerns over inflation as the Federal Reserve wants to see prices under control.
During an interview with Fox News on Jan. 31, he said the U.S. economy is facing “significant issues.”
“We’re going to see a significant slowdown of the U.S. economy over the next six months,” Mr. Mnuchin said.
It’s unlikely that the central bank will pull the trigger on a rate cut in March, Fed Chair Jerome Powell told reporters during the post-Federal Open Market Committee meeting press conference.
The move comes as the Federal Reserve has increased interest rates 11 times since March 2022 in an effort to combat inflation.
During the interview, Mr. Mnuchin blamed the Biden administration for high prices and criticized the Fed for its late response to inflation.
“After we left, there has been continued trillion dollars of spending. And that’s really what fueled inflation and what’s created very high prices,” he said.
“The Fed was late to raising interest rates. And that was a result of their view that inflation was going to come down. When it didn’t, they’ve raised interest rates to very high levels.”
He said he expected a market correction and recommended the U.S. dollar as the safest haven for investors to put their money in despite the disappointing economic outlook.
In the meeting on Jan. 31, the Fed noted that “inflation has eased over the past year but remains elevated,” and Mr. Powell said the U.S. economy hasn’t yet achieved a soft landing, contradicting the White House’s economic position on the issue.
“I would not say we have achieved a soft landing yet,” he said. “We have a ways to go to achieve a soft landing. We are not declaring victory.”
In the interview, the former treasury secretary praised the economy during the Trump administration, particularly tax-cut policy. Mr. Mnuchin also endorsed the 45th president for his 2024 White House bid, unlike many other former Trump cabinet members.
“I support and endorse President Trump because I believe in his policies. And I’m proud of both the national security and the economic policies that we put in place,” he said.
Market ‘Rebellion’
Last month, during a speech on a panel at the Bipartisan Policy Center in Washington, JPMorgan Chase CEO Jamie Dimon warned of a market “rebellion” if out-of-control spending in Washington keeps adding to the growing pile of U.S. government debt.He recalled that in the early 1980s, the debt was about 35 percent of gross domestic product (GDP). Today, the debt-to-GDP ratio is above 100 percent, and Mr. Dimon said it’s projected to reach 130 percent by 2035.
“It’s a hockey stick,” he said of his prediction for the future path of the debt-to-GDP ratio, applying a term often used to describe a chart pattern showing plotted values moving more or less sideways—before they suddenly spike and vault skyward.
While the United States has not yet suffered the “hockey stick” surge, Mr. Dimon warned that “when it starts, markets around the world—by the way, because foreigners own $7 trillion of U.S. government debt—there will be a rebellion.”
A “rebellion”-type reckoning—which could involve a sudden deepening of the debt crisis as investors lose confidence in the government’s ability to service its debts and sell off U.S. Treasurys—would be “the worst possible way to do it,” the bank chief said.
Analysts at the University of Pennsylvania estimate that when the debt-to-GDP ratio hits about 200 percent, that will be the point of no return—when no amount of future tax increases or spending cuts could prevent the government from defaulting on its debt.
