Janet Yellen, who previously served as chair of the Federal Reserve, has issued a cautionary statement regarding the United States' escalating national debt and the risks it poses to the country’s economic stability and monetary governance. Speaking at a panel discussion focused on the future role of the Federal Reserve, Yellen emphasized the dangers that mounting debt levels could present in the near term, particularly highlighting the phenomenon known as \"fiscal dominance.\"
Fiscal dominance occurs when the government’s fiscal policies and debt obligations begin to override the central bank's independence, effectively pressuring it to keep interest rates lower than economic conditions would typically justify. This can undermine the Federal Reserve's capacity to manage inflation and stabilize the financial system efficiently. According to Yellen, this risk is becoming more pronounced as the federal debt continues its upward trajectory.
The national debt is projected to surpass $38 trillion by late 2025, a figure Yellen underscored as a marker of significant concern. She referenced detailed forecasts from the Congressional Budget Office, which indicate that if current trends persist, the debt could escalate to approximately $50 trillion within the next ten years. This would exceed 118% of the country's gross domestic product (GDP), representing a historically high debt burden for the United States.
Yellen warned that such persistent debt accumulation coupled with fiscal dominance pressures could lead to higher term premiums and borrowing costs. Investors, sensing increased risks associated with government debt sustainability, might demand greater compensation for loaning funds to the Treasury. There is also a heightened apprehension that policymakers might resort to inflation or forms of financial repression to manage the debt load, further complicating economic management.
When asked directly about whether concerns regarding fiscal dominance are warranted, Yellen’s response was unequivocal. She stated, \"Should we be concerned about the potential for fiscal dominance? In my opinion, the answer is yes.\" This declaration underscores the seriousness she attributes to this emerging threat.
Yellen's remarks come amidst a broader context of warnings from economists and financial leaders regarding America’s debt dynamics. Notably, in November 2025, Richard Haass, president of the Council on Foreign Relations, highlighted the potential national security implications of a $38 trillion debt, suggesting it might compromise the government’s capacity to effectively allocate resources and respond to strategic challenges.
Similarly, Geng Ngarmboonanant, managing director at JPMorgan Chase and a former deputy chief of staff to Yellen, has expressed concern about changes in the ownership structure of U.S. government debt. These shifts, he explained, have contributed to heightened and more volatile interest rate environments, which pose risks to the overall financial system's stability.
The warning about fiscal dominance dovetails with Yellen's past critiques about the politicization of the Federal Reserve. Earlier in 2025, she publicly disapproved of then-President Donald Trump’s decision to dismiss a Federal Reserve governor, emphasizing that political interference tends to result in higher inflation, erratic economic growth, and weaker currency valuations. Yellen maintained that such outcomes ultimately harm the country's economic framework, highlighting the importance of central bank autonomy.
As the national debt continues to climb without clear mitigating measures, the interplay between fiscal policy and monetary independence will remain closely scrutinized. The substantial debt increase, combined with political pressures and changing market dynamics, poses critical challenges for maintaining financial stability and ensuring effective governance of economic policy tools.
While forecasts and expert opinions vary on the speed and severity of potential impacts, the consensus among these experienced economic voices stresses the urgent need for awareness and prudent management of the fiscal trajectory to safeguard the United States’ long-term economic health.