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Debt Ceiling Standoff Is a New Headwind for the Fed

The Federal Reserve’s decision on whether to continue raising rates comes at a difficult economic moment for the United States, with President Biden and Republicans in Congress locked in a stalemate over how to raise the country’s debt ceiling. increase.

High inflation and banking system instability continue to weigh on the U.S. economy, but the more immediate concern is the possibility of debt default. The federal government could fail to pay all its bills as early as June 1, Treasury Secretary Janet L. Yellen warned this week, setting the stage for a self-inflicted economic disaster. I was.

Analysts and economists are increasingly warning that debt defaults could crash financial markets and plunge the U.S. and, by extension, the global economy into recession.

A Treasury official said the debt limit was the biggest risk facing the economy, and a financial crisis would occur if the borrowing limit was not raised. Crisis of ‘Historical Proportions’ and a sharp economic contraction that will leave millions of Americans facing unemployment. Also, borrowing costs will likely skyrocket and Social Security and Medicare beneficiaries will be unable to receive benefits.

The Fed has argued it is up to Congress to act to raise the $31.4 trillion debt ceiling, and Fed Chairman Jerome H. Powell warned earlier this year that failure to do so would hurt the U.S. economy in the long run. warned that it would cause serious damage.

‘Congress really needs to raise the debt ceiling,’ says Powell told the Senate Banking Committee in March“If you don’t, it’s hard to estimate the consequences, but it can be very harmful and cause long-term harm.”

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