NOEL KING, HOST:
We're going to turn now to recent developments in the economy because there have been a lot of them. The federal deficit grew to $779 billion in the 2018 fiscal year. That's according to new numbers from the Treasury Department. And it is a 17 percent jump from 2017.
Now, President Trump went on Fox Business Network yesterday, where he said the U.S. would start reducing spending. But he also turned to a familiar complaint, the Federal Reserve. He called the Fed, quote, his "biggest enemy," and said nominating Jerome Powell to lead it may have been a mistake.
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PRESIDENT DONALD TRUMP: It's independent, so I don't speak to him. But I'm not happy with what he's doing because it's going too fast.
KING: David Wessel is joining us now. He's director of the Hutchins Center at the Brookings Institution. And he contributes to The Wall Street Journal. Good morning, David.
DAVID WESSEL: Good morning.
KING: All right, so the president has colorfully criticized the Fed before. But calling the Federal Reserve his biggest enemy is something new. His critique is that they're raising interest rates too aggressively. Does he have a point?
WESSEL: I think it's very hard to argue that the Fed has raised interest rates too much so far. After all, the Fed's interest rates are around 2 percent, pretty low, even though unemployment is at a 50-year low and inflation is starting to creep up. But I think there are people who argue that the Fed is preparing to go too fast. Expectations are they'll raise interest rates perhaps another percentage point in 2019. And some people think that's more than is needed, given that there's not much inflation and not much of a wage increase going on.
KING: All right, and the president appears to be in that camp. Let's turn to this - this growing deficit, $779 billion. Now, some lawmakers immediately came out and blamed the Republican tax cuts. Here's Democratic Senator Chris Van Hollen talking at a budget committee hearing last month.
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CHRIS VAN HOLLEN: These soaring deficits are highly unusual given the fact that the economy has been growing for more than nine years. When you look under this, you find a number of elements. But one thing that jumped out in this most recent report is that corporate tax receipts have fallen by 30 percent in the aftermath of the passage of the Republican tax bill.
KING: I mean, David, advocates of these tax cuts said, look, they're going to pay for themselves because cutting business taxes spurs economic growth. Are we seeing that play out? And is that argument wrong?
WESSEL: Well, look. The economy is growing pretty well. But revenues, total revenues, have not gone up at all. So the case that the deficit grew because we cut taxes a lot is clearly supported by the facts. It's what the Congressional Budget Office and other arbiters say. I think the case that cutting taxes would spur growth is untested because that argument really was a long-run one, that businesses would invest more. The economy would grow faster over time, and that would offset the cost of some or all of the tax cuts. That's not something that can happen instantly.
KING: All right, that - that argument may be jumping the gun a bit. Republicans, though, blame government spending for the deficit. Here's Senate Majority Leader Mitch McConnell talking to Bloomberg TV yesterday.
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MITCH MCCONNELL: It's very disturbing. And it's driven by the three big entitlement programs that are very popular - Medicare, Social Security and Medicaid. That's 70 percent of what we spend every year.
KING: Does he have a point?
WESSEL: Well, I think that 70 percent is wrong. Social Security, Medicare and Medicaid are 50 percent of the federal budget. You have to throw in all benefits, including farm benefits, veterans and interest on the debt to get to 70 percent. But he does have a point. We have a deficit because we spend more than we take in. And the big drivers of government spending, as the society ages over the next decade, are going to be retirement and health programs. We're not going to fix the deficit without touching them, in my opinion, and without touching taxes at the same time.
KING: David Wessel of the Brookings Institution. Thanks, David.
WESSEL: You're welcome. Transcript provided by NPR, Copyright NPR.