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Treasury chief warns failure to raise debt limit would likely cause ‘financial crisis’

Treasury Secretary Janet Yellen listens to a person speak nearby.
Treasury Secretary Janet Yellen appears before a Senate Banking, Housing and Urban Affairs Committee hearing on the CARES Act on Capitol Hill on Tuesday in Washington.
(Matt McClain/AP)

Treasury Secretary Janet Yellen is sounding an urgent call for Congress to raise the government’s borrowing limit, a day after Senate Republicans blocked consideration of a bill that would have done so.

Yellen is testifying Tuesday to the Senate Banking Committee at a hearing to update Congress on the impact of the vast financial support programs the government enacted after the COVID-19 pandemic paralyzed the economy 18 months ago.

If the debt limit isn’t raised by Oct. 18, Yellen warned, “the full faith and credit of the United States would be impaired, and our country would likely face a financial crisis and economic recession.”

In a separate letter she sent Tuesday to congressional leaders, Yellen also said that a prolonged battle over raising the limit could imperil the economy.

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“Waiting until the last minute,” the Treasury secretary wrote, “can cause serious harm to business and consumer confidence, raise borrowing costs for taxpayers, and negatively impact the credit rating of the United States for years to come.”

The Treasury would have to default on some government bills, possibly including checks to investors and retirees.

Federal Reserve Chair Jerome H. Powell, who is also testifying before the committee, is acknowledging in his prepared remarks that inflation pressures have remained high longer than Fed officials expected. If those pressures persist, Powell says, the Fed will eventually use its tools to slow price gains. The Fed normally does so by raising its benchmark short-term interest rate.


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