- Biden warns of a recession in the US if the ceiling is not raised quickly
- Yellen is bullish on the global economy and inflation
- Slowing inflation in China is increasing fears of a global recession
- G7 fiscal officials open meeting in Niigata, Japan
NIIGATA, Japan, May 11 (Reuters) – A standoff in Washington over raising the US debt ceiling overshadowed a meeting of finance chiefs in the Group of Seven (G7) that began Thursday and fueled recession fears in the US as central banks eased a soft Landing for USA go global economy.
President Joe Biden on Wednesday pressured Republican lawmakers to act quickly and raise the government’s current borrowing limit of $31.4 trillion or risk plunging the world’s largest economy into recession.
Treasury Secretary Janet Yellen was expected to answer questions from her G7 peers at a meeting in the Japanese city of Niigata on how Washington plans to avoid turmoil in financial markets already on edge after the recent collapse of three US regional banks.
“A default would jeopardize the gains we have worked so hard to achieve in the past few years in recovering from the pandemic. And it would trigger a global downturn that would set us back much further,” Yellen said Thursday in Niigata.
The US debt crisis is a concern for Japan, which holds the G7 presidency this year and is the world’s largest holder of US debt.
“We will not go into such specific issues,” Japanese Finance Minister Shunichi Suzuki told reporters on Thursday when asked what kind of solution Japan wants from the United States.
Instead, G7 fiscal leaders will discuss how to better address financial system risks by sharing their understanding of lessons learned from recent US bank failures, Suzuki added.
“The G7 will be unable to find a solution to a purely domestic and US political issue, although at worst the group could reiterate its determination to work together to stabilize markets,” said Takahide Kiuchi analyst at Nomura Research Institutes.
“Washington has sole responsibility for correcting the problem. But if something goes wrong, all other countries will bear the brunt.”
DAMPING GLOBAL OUTLOOK
Global economic risks, including persistently high inflation and the fallout from aggressive rate hikes in the US and Europe, are likely to be among the key issues for G7 finance ministers and central bankers.
Yellen said the global economy is in “better shape than many had predicted six months ago” and inflation has moderated in many G7 countries, including the United States.
Even as the Federal Reserve’s rapid rate hikes weigh on the US economy, the latest data show signs of weakness in China, the world’s second largest economy.
China’s consumer prices rose at their slowest pace in more than two years in April, while deflation deepened at the factory gates, data showed on Thursday, dashed policymakers’ hopes that a recovery in the country’s demand would bolster global growth would support.
Other key issues to be discussed at the G7 financial meeting include ways to strengthen the global financial system, steps to prevent Russia from circumventing sanctions over its invasion of Ukraine, and diversifying supply chains away from countries like China through partnerships with low- and middle-income nations.
Previous rows over the US debt ceiling typically ended in a hastily arranged deal in the closing hours of negotiations, avoiding an unprecedented default.
In 2011, the scramble led to the first ever downgrade of the United States’ prime credit rating. Veterans of that battle warn that the current situation is riskier because political divisions have widened.
At the time, G7 fiscal leaders said in a statement they were “determined to address the tensions arising from current challenges related to our fiscal deficits, our debt and our growth.”
Reporting by Leika Kihara and Andrea Shalal in Niigata; Additional reporting by Tetsushi Kajimoto and Takaya Yamaguchi; Edited by William Mallard
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