2009 ), “ new evidence on the interest rate effects of budget deficits and debt, ” journal of the european economic association, vol. 7 ( june ), pp. 858 – 85 ; and joseph w. gruber and steven b. kamin ( 2012 ), “ fiscal positions and government bond yields in oecd countries, ” journal of money, credit and banking, vol. 44 ( december ), pp. 1563 – 87. bis central bankers ’ speeches borrow in euros. the united states borrows in its own currency – the world ’ s primary reserve currency. that difference is crucial for investors, along with the fact that the united states economy remains the world ’ s largest and most productive. the united kingdom and japan are also high - debt countries that borrow in their own currencies ; neither shows any detectable rate increase, let alone a nonlinear one. these countries present a serious problem for the authors ’ case. of course, the united states is not exempt from concerns about the potential long - term effects of an unsustainable fiscal path. there is almost certainly a level of debt at which the united states would be at risk of an interest rate spike. however, we should expect that level to be substantially above one identified based on the experience of smaller euro - zone nations. the argument also has a serious timing problem. the federal reserve ’ s balance sheet likely will be normalized by late this decade, before the federal debt - to - gdp ratio even increases materially from today ’ s level. under the reasonable projection mentioned above, the debt - to - gdp ratio will remain roughly stable until 2020 before rising significantly in the next decade. 8 that ’ s not a favorable longer - term forecast, all the more so because it is importantly the result of demographic changes that have been expected for decades. but the forecast doesn ’ t support the authors ’ claim that fears of fiscal dominance could materialize in the united states within the next five to seven years, during the period when the fed is normalizing its balance sheet. no current market signal suggests that the united states is near the point of losing the market ’ s confidence. in my view, nothing in the congressional budget office debt forecasts or the authors ’ empirical findings provides grounds for such an event during this decade. the market has every reason to believe – and apparently still does believe – that the united states will continue the difficult task of fiscal consolidation until the job is done. terribly difficult fiscal adjustments

janet l yellen : semiannual monetary policy report to the congress testimony by ms janet l yellen, chair of the board of governors of the federal reserve system, before the committee on banking, housing, and urban affairs, us senate, washington dc, 24 february 2015. * * * chairman shelby, ranking member brown, and members of the committee, i am pleased to present the federal reserve ’ s semiannual monetary policy report to the congress. in my remarks today, i will discuss the current economic situation and outlook before turning to monetary policy. current economic situation and outlook since my appearance before this committee last july, the employment situation in the united states has been improving along many dimensions. the unemployment rate now stands at 5. 7 percent, down from just over 6 percent last summer and from 10 percent at its peak in late 2009. the average pace of monthly job gains picked up from about 240, 000 per month during the first half of last year to 280, 000 per month during the second half, and employment rose 260, 000 in january. in addition, long - term unemployment has declined substantially, fewer workers are reporting that they can find only part - time work when they would prefer full - time employment, and the pace of quits – often regarded as a barometer of worker confidence in labor market opportunities – has recovered nearly to its pre - recession level. however, the labor force participation rate is lower than most estimates of its trend, and wage growth remains sluggish, suggesting that some cyclical weakness persists. in short, considerable progress has been achieved in the recovery of the labor market, though room for further improvement remains. at the same time that the labor market situation has improved, domestic spending and production have been increasing at a solid rate. real gross domestic product ( gdp ) is now estimated to have increased at a 3 – 3 / 4 percent annual rate during the second half of last year. while gdp growth is not anticipated to be sustained at that pace, it is expected to be strong enough to result in a further gradual decline in the unemployment rate. consumer spending has been lifted by the improvement in the labor market as well as by the increase in household purchasing power resulting from the sharp drop in oil prices. however, housing construction continues to lag ; activity remains well below levels we judge could be supported in the longer run by population growth and the likely rate of household formation. despite the overall improvement in the u. s. economy and the u.