Federal Reserve Chairman Jerome Powell has encouraged both Democrats and Republicans to take the right steps amid warnings of potential dire economic consequences if the U.S. fails to make its debt payments on time. Powell warns that no one should assume that the Fed can protect the economy from the adverse potential consequences of a debt default, including potential short and long-term repercussions.

During the Federal Open Market Committee meeting this week, the Fed officials discussed the risks of the U.S. debt ceiling. Nevertheless, the topic did not have an influence on their decision to raise the key interest rates by 25 basis points. Treasury Secretary Janet Yellen further warned that a U.S. debt default would cause a financial and economic catastrophe, a sentiment echoed by Christine Lagarde, the European Central Bank president.

The Treasury Department, Yellen said, will no longer be able to pay all of the government’s debt obligations starting June 1 this year if Congress does not take action to adjust or suspend the debt ceiling. Powell does not wish to get involved in the dispute, noting the critical importance of resolving this issue. He therefore pleads for increased efforts from both sides of the political spectrum to reach a beneficial agreement.



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