During a House Financial Services Committee hearing, Fed Chairman Jerome Powell said that lawmakers “must raise” the debt ceiling to avoid an unprecedented default.
“No one should assume that the Fed can protect the economy from the non-payment of the government’s bills, let alone a debt default,” Powell said.
The U.S. will default on its debt this summer if Congress doesn’t pass legislation to raise the nation’s borrowing limit. Republicans say they will only raise the debt ceiling if Democrats agree to spending cuts, which they’ve so far been unwilling to do.
A debt default would wipe out 6 million U.S. jobs, according to an analysis from Moody’s, and undermine the nation’s credibility with borrowers across the world. Powell said that a default would “do long-standing harm.”
Powell on Wednesday also rejected the idea that the Treasury could mint a trillion-dollar coin and deposit it with the Federal Reserve to prevent a debt default.
Republican lawmakers have expressed concern that the Biden administration could use the last-ditch tactic to circumvent Congress — Sen. Mike Lee (R-Utah) introduced a bill last week to prevent the trillion-dollar coin — but Treasury Secretary Janet Yellen has also dismissed the idea.
“There are no rabbits to be pulled out of hats here. … That would be a rabbit coming out of a hat,” Powell said when asked about such a coin.
