Debt Ceiling Resolution Is Congress' Responsibility
Powell highlighted that resolving the debt ceiling standoff between Republicans and Democrats matters for Congress and the Biden administration. The Fed's role is not to advise either side but to stress the importance of resolving the issue.
U.S. Default's Diverse Consequences
Powell said a U.S. default would be unprecedented and have "highly uncertain" and "quite diverse" consequences for the U.S. economy, but he declined to enumerate them. He insisted that discussions about the U.S. not paying its bills should not be happening.
Limitations of the Fed's Protective Role
Powell cautioned against assuming that the Fed can protect the economy, the financial system, and the U.S.'s global reputation from the damage that a debt limit default might inflict.
Yellen's Warning and Biden's Response
U.S. Treasury Secretary Janet Yellen warned that a default on U.S. payment obligations due to insufficient cash could come as early as June 1, which prompted President Joe Biden to call for a May 9 meeting with top Congressional leaders. It remains unclear whether negotiations over Republicans' spending cuts demands will occur or if the focus will be on a "clean" debt ceiling increase. Yellen also warned that a debt ceiling default would cause "severe hardship" to American families and harm the U.S. global leadership position.