U.S. Senate Minority Leader Mitch McConnell walks into the Senate chamber ahead of the passage of a bill to raise the debt ceiling, which has been blocked by his Republican Party. photo / application
Two senior U.S. Federal Reserve officials today warned that failure to raise the U.S. debt limit would have dire consequences, as Senate Republicans blocked and blocked a bill to increase the debt limit. ‘loan.
of a government judgment.
John Williams, chairman of the Federal Reserve Bank of New York, said the US central bank would be unable to cushion the impact of a possible default on US government debt. The Washington think tank, the bipartisan political center, estimated last week that the US government could default on its obligations in mid-October if the debt ceiling is not raised.
Williams warned reporters of the risk that investors could be “extremely nervous” and think “I have to quit,” which he said could lead to “market overreaction.”
He said US Treasury prices reflect investors’ belief that “cooler heads” will prevail in Congress and therefore are not necessarily an indicator of “the extent of risk.”
“If you really crossed that line and got to a point where the government didn’t pay its obligations, I think it would create a very negative momentum, not just in America but around the world, Williams called for a market downturn for. the US Treasury last year.
“We saw it in March 2020, the Treasury market… is the center of the global financial system and if it is not able to function, that has implications,” he said.
US $ 22 trillion (31.3 tons) market trading positions for US government debt were entered at the start of the pandemic last year, as investors abandoned even the safest securities as part of a large dash-for-cash Was. A sudden burst of liquidity forced the Fed’s immediate intervention to avert a more serious crisis.
Williams’ comments were echoed by US Treasury Secretary Janet Yellen. In testimony due to be submitted to the Senate Banking Committee yesterday, she called on lawmakers to increase the loan limit so that what she says is a “catastrophic event”. [the] Economy”.
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Federal Reserve Governor Lyle Brainard also urged lawmakers to take action today. “Congress knows what to do … it has to step up, it has responsibilities,” he said.
Brainard and Williams’ comments follow a warning from Fed Chairman Jay Powell last week about “serious damage” if the United States defaults on its obligations.
The Democratic-controlled House of Representatives this month passed a measure to prevent a government shutdown on October 1 and extend the U.S. debt limit until December next year in a vote of party line.
But the bill failed to clear the 60-vote Senate obstruction limit today (Monday night local time), with Republicans in the upper house of Congress voting to reject the measure. Democrats, who control the Senate by the narrowest margin, are now under pressure to raise borrowing limits themselves and prevent a government shutdown before Friday’s 12:01 deadline.
Today’s vote comes after a week-long standoff between Democrats – who want the GOP to sign a lift of the Treasury borrowing limit – and Republicans, who have consistently refused to back the measure and that by Joe Biden. The party has been accused of reckless public spending.
Republicans, supported by Democrats, have voted three times to suspend the debt ceiling under Donald Trump’s administration.
Top Senate leader Republican Mitch McConnell said ahead of today’s vote that he and his GOP allies would support a “clean” law that funded the federal government to avoid the shutdown, but Democrats’ efforts to bind the government. will not sign. Funding up to the loan limit.
“There’s no way the Republicans will help lift Democrats’ credit limits so they can quickly get through a socialist frenzy that will hurt families and help China,” McConnell said.
Democratic lawmakers are also working to resolve internal party divisions in the coming weeks to pass the US $ 1.2 billion key infrastructure bill and the 3.5 billion social investment program. million US dollars.
Democratic House Speaker Nancy Pelosi is expected to vote on the infrastructure bill on Thursday.
Pelosi said over the weekend that she would not present the infrastructure bill to the House until she was sure she had the votes to pass it. That prospect still seemed uncertain on Monday, as several progressive and liberal lawmakers raised issues with the legislative package.
Progressives want reassurance that the 3.5-ton bill will not be reduced in the Senate, while moderates say broader social investments need to be cut.
Biden told reporters at the White House today optimistically: “I think things are going to be good, I think we are going to get there.” Asked what was “at stake” for his presidency amid congressional wrangling this week, the president replied, “Victory is at stake.”
Written by: Lauren Feder, Colby Smith and James Politik
© Financial Times
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