WASHINGTON, May 3 (Reuters) – The Federal Reserve is unlikely to be able to shield the US economy from the damage caused by not raising the federal debt ceiling, Fed Chair Jerome Powell said on Wednesday, adding that the government should never be in a position where it is unable to pay all of its bills.
Powell said at a news conference following the Fed’s latest rate-hike decision that resolving the standoff between Republicans and Democrats on the debt ceiling is a matter for Congress and the Biden administration.
“We’re not giving advice to either side,” Powell said. “We just want to point out that it is very important that this is done.”
A US default would be unprecedented and would have “highly uncertain” and “rather varied” consequences for the US economy, Powell said, but declined to list them.
“We shouldn’t even be talking about a world where the US doesn’t pay its bills. It just shouldn’t matter,” Powell said.
“Nobody should assume that the Fed can really protect the economy and the financial system and our reputation around the world from the damage that such an event could do,” he added.
On Monday, US Treasury Secretary Janet Yellen said the Treasury Department’s best estimate is that a default on US payment obligations due to insufficient cash resources could occur as early as June 1, raising alarm bells that urgent action to raise the credit limit is needed.
President Joe Biden responded by inviting the top four congressional leaders to a meeting at the White House on May 9, but it remained unclear whether he would begin negotiations on Republicans’ spending cut demands or continue to insist on a “clean” debt ceiling hike.
Yellen has warned that a debt ceiling default will cause “serious hardship” for American families, increasing the cost of borrowing and hurting the US’s global leadership position.
Reporting by David Lawder Edited by Chris Reese
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