WASHINGTON–Treasury Secretary Janet L. Yellen offered a warning to lawmakers of “catastrophic” consequences if Congress doesn’t soon raise or suspend the statutory debt limit, while Federal Reserve Chairman Jerome Powell said inflation is likely to stay high in the coming months before moderating.
Both Yellen and Powell shared their views during testimony before the Senate Banking Committee.
In her remarks, Yellen was frank in sharing what she believes will happen if Congress doesn’t raise the debt limit before Oct. 18. Among the consequences, according to Yellen:
- Social Security recipients could see delays in payments
- Members of the military will not know if and when their paychecks will arrive
- Interest rates will rise on credit cards, car loans and mortgages
The Biggest Threat
Most dangerous, said Yellen, a default on debt payments by the United States would jeopardize the dollar’s status as the international reserve currency.
“It would be disastrous for the American economy, for global financial markets, and for millions of families and workers whose financial security would be jeopardized by delayed payments,” Yellen testified.
Prior to her testimony, Yellen sent a letter to Congress saying Treasury is likely to exhaust the “extraordinary measures” she has been employing to delay a default if Congress has not acted by Oct. 18.
“At that point, we expect Treasury would be left with very limited resources that would be depleted quickly,” Yellen wrote. “It is uncertain whether we could continue to meet all the nation’s commitments after that date.”
Congressional Republicans have so far blocked measures that would lift the debt ceiling.
The View from the Fed
Separately, in his comments the Fed’s Powell said he expects inflation is likely to remain high in the coming months before moderating, the result of numerous factors, including supply chain issues and shortages. Those factors will “abate, and as they do, inflation is expected to drop back toward” the Fed’s 2% goal, Powell said.
Powell told the Senate that there are risks that price pressures will remain higher than anticipated or more enduring. As a result, the Fed would raise interest rates “if sustained higher inflation were to become a serious concern,” he said.
Both Yellen and Powell offered caution that the Delta variant of the coronavirus had slowed the economic recovery, but the economy continues to strengthen.
Yellen and Powell will testify again on Thursday before the House Financial Services Committee.
Cyber Concerns
In addition, Powell told the hearing cyber-related risks remain the most significant threat to the financial services industry.
“The risk we haven’t really faced the full brunt of yet is a successful cyber attack on a financial institution of some kind – be it a financial market utility, a bank or some other type of financial institution,” Powell said.