Federal Reserve Chair Jerome Powell emphasized on Wednesday that the U.S. Federal Reserve would likely be unable to shield the U.S. economy from the detrimental repercussions of a failure to raise the federal debt ceiling. He stated during a press conference following the Fed’s recent decision to increase interest rates that the resolution of the debt ceiling standoff, which involves Republicans and Democrats, falls within the purview of Congress and the Biden administration.
Powell explicitly mentioned, “We do not provide guidance to either faction. It is crucial, however, to underscore the significance of resolving this matter promptly.”
Regarding the potential consequences of a U.S. default, Powell cautioned that they would be both “highly uncertain” and “quite diverse,” refraining from elaborating further on their specifics.
Powell stressed, “The notion of the United States failing to meet its financial obligations should not even be a topic of discussion. It should simply not exist.”
Furthermore, he added, “One should not assume that the Federal Reserve can effectively safeguard the economy, the financial system, and our international reputation against the adverse consequences that such an event could inflict.”
Treasury Secretary Janet Yellen warned on Monday that, based on the Treasury’s estimations, a default on U.S. payment obligations due to insufficient funds might occur as early as June 1, raising urgent concerns regarding the necessity for immediate action to increase the borrowing limit.
In response, President Joe Biden convened a meeting on May 9 at the White House with the four principal Congressional leaders. However, it remained uncertain whether he would engage in negotiations concerning Republicans’ demands for spending cuts or persist in seeking an unconditioned increase in the debt ceiling.
Yellen reiterated that a default resulting from the debt ceiling would bring about “severe hardship” for American households by escalating borrowing expenses and undermining the global leadership position of the United States.