Federal Reserve Chair Jerome Powell emphasized that merely cutting discretionary federal spending will not effectively solve the U.S. debt crisis.

He pointed out that the real challenges in reducing government debt stem from the rising costs of Medicaid, Medicare, Social Security, and increasing interest payments.

In the first half of fiscal 2025, the U.S. faced a staggering $1.31 trillion budget deficit, marking a 23% increase compared to the previous year.

During this period, the majority of federal spending was directed toward nondiscretionary outlays, which include healthcare programs, Social Security, and interest payments.

Powell stressed the importance of bipartisan cooperation to address these significant spending areas, asserting that neither political party can tackle the issue alone.

He criticized the current focus on reducing domestic discretionary spending, noting that it represents a small and diminishing portion of overall federal expenditures.

Powell highlighted that the U.S. is running substantial deficits even with full employment, underscoring the urgent need for action on federal debt.

He also dismissed initiatives like Elon Musk's Department of Government Efficiency as largely irrelevant to effectively addressing the debt problem.