Here’s What the Fed Chair Said This Week, and Why It Matters

“Inflation is extremely high, and that it is hurting the working people of this nation badly,” he said. “We are taking the only measures that we have to bring inflation down.”

The debt limit is a risk.

Mr. Powell was also asked to comment on a coming debate over raising the nation’s debt limit — one that is looming over both Fed policy and the economy.

The federal government, which hit its technical debt limit on Jan. 19 and has been employing accounting maneuvers to continue paying its bills, is expected to exhaust those measures by this summer. At that point, Congress will need to suspend or increase the debt limit to avoid a default. So far, Republicans are insisting they won’t increase the debt limit unless President Biden makes deep spending cuts, which the president has said he will not do.

The mere threat that the United States might fail to come to an agreement that would allow it to keep paying on its debts would roil markets, analysts warn.

It might prove difficult for the Fed to continue raising interest rates into a looming financial disaster, so it could also temporarily derail the nation’s inflation-fighting efforts. And it could carry even more severe long-term consequences, potentially hurting America’s reputation for safety and soundness.

“Congress raising the debt ceiling is really the only alternative. There are no rabbits in hats to be pulled out on this,” Mr. Powell said on Wednesday. “No one should assume that the Fed can protect the economy from the nonpayment of the government’s bills, let alone a debt default or something of that nature.”

Article source: https://www.nytimes.com/2023/03/08/business/economy/fed-chair-inflation-interest-rates.html