Fed can’t shield economy from debt default, says Powell

Federal Reserve Chair Jerome Powell

The US Federal Reserve will unlikely to be able to protect the US economy from the repercussions caused by a failure to raise the federal debt ceiling, Chairperson Jerome Powell said in a press conference after the Fed's latest rate hike decision.

The government should never be in a position where it is unable to pay its bills, he added.

Powell also indicated that resolving the debt ceiling standoff between the Republicans and the Democrats was a matter for Congress and the Biden administration.

"We don't give advice to either side," Powell said. "We would just point out that it's very important that this be done."

"No one should assume that the Fed can really protect the economy and the financial system and our reputation globally from the damage that such an event might inflict," he added.

On Monday, the US Treasury Department noted that the its best estimate was that a default on US payment obligations due to insufficient cash could come as early as June 1, raising alarm bells on the need for urgent action to increase the borrowing cap of $31.4 trillion, already set in January.