Federal Reserve Chairman Jerome Powell said Thursday that the global economy could suffer “unthinkable” damage if the White House and Congress fail to raise the federal debt limit.
Testifying before the Senate Banking Committee, the Fed chairman said it was “essential” for Congress to raise the legal limit on the federal debt before the U.S. government defaults on its loans.
“We've always paid our bills, and it simply must happen that Congress raises the debt ceiling in time to allow that to happen,” Powell said.
Powell’s remarks come as lawmakers and the Trump administration face growing pressure to strike a deal to avoid mandatory budget cuts and lift the debt ceiling, which was automatically reimposed March 1.
While the federal government is legally barred from taking on more debt, the Treasury Department has been able to stave off a default through “extraordinary measures,” such as delaying and prioritizing certain investments and debt payments.
Treasury’s ability to delay a default was expected to last until at least early October. But a forecast released this week by the Bipartisan Policy Center projected extraordinary measures to run out by early or mid-September.
The House is set to break for summer recess on July 26 with the Senate leaving a week later, giving lawmakers much less time than initially expected to complete difficult negotiations.
If Congress and the White House cannot reach a deal to raise the debt ceiling by the end of the month, the government may have mere days to prevent a catastrophic default when lawmakers return to Washington in September.