Treasury Secretary Janet Yellen warns delay in raising debt ceiling will slow economy
WASHINGTON >> Treasury Secretary Janet Yellen today made an urgent appeal to Congress to increase the government’s borrowing limit, a day after Senate Republicans blocked consideration of a bill that would have done so.
If the debt limit is not raised by Oct. 18, Yellen warned, “America’s full confidence and credit would be jeopardized, and our country would likely face a financial crisis and recession. economic”. Yellen testified before the Senate Banking Committee in a hearing to brief Congress on the impact of sweeping financial support programs the government adopted after the viral pandemic crippled the economy 18 months ago.
She added that failure to raise the debt ceiling would likely drive up interest rates and inflate government interest payments on the national debt.
“And ordinary Americans’ interest payments on their mortgages and on their cars and on their credit cards would increase,” she said.
Federal Reserve Chairman Jerome Powell, who also addressed the committee, warned that it was “essential” to raise the debt ceiling and that the consequences of not doing so “could be severe” .
The debt limit caps the amount of money the government can borrow and must be increased after congressional votes to spend enough money to exceed the debt. The limit has been raised or suspended almost 80 times since 1960. It has been suspended three times under the Trump administration.
In a separate letter Yellen sent to leaders in Congress today, she reinforced her claim that a protracted battle to raise the limit could jeopardize the economy.
“Waiting until the last minute,” the Secretary of the Treasury wrote, “can seriously damage business and consumer confidence, increase borrowing costs for taxpayers and negatively impact credit ratings. United States for the years to come ”.
Senate Republicans on the banking committee argued Democrats could use their House and Senate majority to raise the debt limit themselves, using special Senate procedures to avoid obstruction.
“You just want Republican imprints on the Democrats’ efforts to tax, spend and regulate the United States in Europe,” said Senator John Kennedy, a Republican from Louisiana.
Separately, Senator Elizabeth Warren, Democrat of Massachusetts, said she would oppose a second four-year term for Powell as Fed chairman, should President Joe Biden offer her, because, did she argued, Powell acted to weaken the finance regulations that were enacted after the 2008 financial crisis.
“Time and time again you have taken action to make our banking system less secure,” said Warren. “And that makes you a dangerous man to run the Fed, and that’s why I will oppose your re-appointment.”
Powell’s current term ends in February. Some progressive activists have pushed the Biden administration to replace Powell, because of his track record on financial deregulation and what they see as his insufficient engagement on issues such as climate change in the Fed’s regulatory policies.
Powell was criticized today by some Republicans on the committee for the high and rising costs of gasoline, food and other goods and services. Annual inflation, according to the Fed’s preferred gauge, hit 4.2% in July, the highest in three decades.
Senator Pat Toomey, a Republican from Pennsylvania, noted that inflation extends beyond categories that have been shattered by the pandemic, such as used cars, and asserted that it was not just a temporary spike as suggested by Powell and some other Fed officials.
“We have to recognize that this is not going the way the Fed hoped,” Toomey said.
Powell agreed that inflationary pressures have intensified as supply chain disruptions have persisted and, in some cases, have worsened. But he argued that high inflation is still mainly due to a limited number of factors that have been made worse by the pandemic, such as hotel rooms, rental cars and airline tickets.