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27.09.202108:30 Forex Analysis & Reviews: Jerome Powell calls on US Congress to raise debt ceiling

Exchange Rates 27.09.2021 analysis

The Federal Reserve concluded its September meeting on Tuesday. Experts decided that the regulator was not yet ready to taper the quantitative easing stimulus program. Powell's speech was not just about macroeconomic forecasts, the QE program, and the key rate. He also raised the issue of the US debt limit. As a reminder, the US could run out of budget funds as early as October. It means, that the Treasury, headed by Janet Yellen, will not be able to pay its obligations. The issue of raising the debt limit has therefore been very acute over the last few months. In the US, the nation's borrowing limit is set by Congress. Thus, if the money runs out, it must raise the national debt limit. However, this did not happen. The US federal government's fiscal year begins on October, 1 and the treasury may not be able to make the necessary payments. However, Congress has raised or suspended the country's debt ceiling about 80 times since 1960. In other words, every time there was a risk of insolvency, congressmen would increase the limit, and then the problem would disappear. The problem now is that the Senate and Congress have not yet voted on the issue. Therefore, although the politicians need to raise the limit, the decision has not yet been made.

That is why Jerome Powell during his last press conference urged congressmen to solve the problem as quickly as possible so as not to undermine the international reputation of the United States. "It's just very important that the debt ceiling be raised in a timely fashion so the United States can pay its bills when they come due. The failure to do that is something that could result in severe damage to the economy and to financial markets," Powell said. He also pointed out that the Fed would not be able to protect the markets and the economy in the event of a default. It should be noticed that the previous national debt limit was reinstated at around $22 trillion, a level the US reached in August 2019. Following this, Congress voted to suspend the debt ceiling through July 2021. Therefore, since August, the Treasury has not been able to issue new bonds, which allow it to raise additional funds to finance the activities of the government and all public entities. It should also be mentioned that representatives of the Republican Party oppose any debt ceiling increase unless the Democrats cut spending and take other measures to reduce the national debt. However, the majority in the lower and upper houses of Congress is held by the Democrats. So they can make almost any decision without taking into account the views of the Republicans.

*La presente analisi del mercato ha un carattere esclusivamente informativo e non rappresenta una guida per l`effettuazione di una transazione.

Paolo Greco,
Esperto analitico di InstaForex
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