Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen warned Congress on Tuesday that the U.S. government could run out of money to pay its bills by Oct. 18 if lawmakers fail to raise the debt ceiling. Powell and Yellen said there would be a “devastating” impact if the United States defaults on its debt during testimony before the Senate banking committee. They said that any economic recovery from the COVID-19 pandemic could come to a halt.

Yellen said in her opening statement: “While our economy continues to expand and recapture a substantial share of the jobs lost during 2020, significant challenges from the Delta variant continue to suppress the speed of the recovery and present substantial barriers to a vibrant economy. I remain optimistic about the medium-term trajectory of our economy, and I expect we will return to full employment next year. A rebound like this was never a foregone conclusion. In fact, the American recovery is stronger than those of other wealthy nations.”

Yellen warned: “It is imperative that Congress address the debt limit. If not, our current estimate is that treasury will likely exhaust its extraordinary measures by October 18. At that point, we expect treasury would be left with very limited resources that would be depleted quickly. America would default for the first time in history. The full faith and credit of the United States would be impaired and our country would likely face a financial crisis and economic recession as a result….It would be disastrous for the American economy, for global financial markets, and for millions of families and workers.”

Powell told senators in his opening statement that “inflation is elevated and will likely remain so in coming months before moderating…As the economy continues to reopen and spending rebounds, we are seeing upward pressure on prices, particularly due to supply bottlenecks in some sectors. These effects have been larger and longer-lasting than anticipated, but they will abate, and as they do, inflation is expected to drop back toward our longer-run 2% goal.”


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