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Yellen warns of recession risk if federal debt ceiling is not raised

By Alexander Bueso

Date: Tuesday 05 Oct 2021

Yellen warns of recession risk if federal debt ceiling is not raised

(Sharecast News) - US Treasury chief Janet Yellen warned Congress that the economy was prone to falling into a recession if lawmakers failed to raise the federal debt limit and avert a default on the country´s debt.
"It would be catastrophic to not pay the government's bills," Yellen reportedly told CNBC in an interview.

"I fully expect [default] would cause a recession as well."

She also pushed back against calls from some democrats for the Treasury to make use of a legal loophole that would allow it to mint one or more $1.0trn platinum coins and effectively bypass Congress.

That would undermine trust in the US Congress and the Biden administration, she added.

The day before, President Joe Biden had called on Congress to raise the limit as soon as during the present week.

According to Yellen, Washington was on track to run out of money to keep the lights on come 18 October.

Indeed, the Treasury had already hit the debt ceiling in July and had since been forced to employ extraordinary measures in order to keep paying the bills.´

In particular, the Treasury Secretary called attention to the potential hit to America´s credibility with financial markets from a default and the impact that might have on the US dollar´s status as the world´s reserve currency.

Republicans are refusing to back an increase in the debt ceiling, arguing that Democrats will afterwards look to cut them out of decisions on how to spend the money.

The Biden is also under pressure from some moderates from within his own party to rein in his spending plans.

In the background, as of 1554 BST the yield on the benchmark 10-year US Treasury was climbing by five basis points to 1.536%.

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