The International Monetary Fund has warned that the U.S. defaulting on its debt obligations could have severe consequences for the American and global economies. At a press briefing, the IMF director of Communications Julie Kozack said, it can result in higher interest rates, instability, and lead to a "very serious repercussions" around the globe. She emphasized that avoiding such repercussions must take precedence, and urged parties in the US to reach a consensus to resolve the matter.

The IMF also said in April that the global output growth would fall from 3.4% last year to 2.8% in 2020. An economic pullback due to uncertain financial market disruption could cause a further drop to 1.0%. US Treasury Secretary Janet Yellen has cautioned about a potential default by the US if Congress does not raise or suspend the debt limit before June 1.

The regional banking crisis in the US was also mentioned by Kozack as a possible consequence of the impending debt crisis. She noted that the US authorities have acted swiftly to address the vulnerabilities that were being exposed as the transition from low to high interest rates were happening too rapidly. However, she advised policymakers to remain alert for other hidden vulnerabilities and take necessary steps to prevent them.

It is evident that a default by the US could have global implications, leading to a disruptive effect on the global economy. To avoid this and the subsequent dire consequences, both parties in the US need to reach an agreement quickly. Hopefully, they will be able to work together and avert a financial crisis.



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