Powell says Fed can't protect economy in event of US default

WASHINGTON - US Federal Reserve Chair Jerome Powell said on Wednesday that the central bank can't protect the US economy and financial markets from severe damage if the United States defaults on its debt.

"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," Powell told reporters at a virtual press conference.

"The failure to do that is something that could result in severe damage to the economy and to financial markets," Powell said, adding the United States shouldn't default on any of its obligations and should pay them when due.

"No one should assume that the Fed or anyone else can protect the markets and the economy, fully protect, in the event of a failure to make sure that we do pay those debts," he said.

Powell's remarks came after former secretaries of the US Treasury Department earlier Wednesday urged Congress to swiftly raise the federal debt limit.

"Failing to address the debt limit, and allowing an unprecedented default, could cause serious economic and national security harm," the former Treasury secretaries wrote in a letter to congressional leaders, noting even a short-lived default could threaten economic growth.

Current US Treasury Secretary Janet Yellen also warned on Sunday that US economic recovery would reverse into recession if the Congress fails to swiftly raise the debt limit.

As part of a bipartisan budget deal enacted in August 2019, the Congress suspended the debt limit through July 31. After the debt limit was reinstated on Aug 1, the US Treasury Department began using "extraordinary measures" to continue to finance the government on a temporary basis.