Fed Fears 'Significant Risks' From Drawn-Out Process of Raising US Debt Limit

WASHINGTON (Sputnik) - The drawn-out process in raising the US debt ceiling poses “significant risks" to the country’s financial system and economy, the Federal Reserve said Wednesday in published minutes from its February policy meeting that added to experts voicing fears of a historic debt default.

“A number of participants stressed that a drawn-out period of negotiations to raise the federal debt limit could pose significant risks to the financial system and the broader economy,” the minutes said. “In subsequent months, uncertainties associated with the debt limit could also be important.”

The Fed caution came as a Washington think tank said Wednesday the United States could face an unprecedented default on its payments by early June without the raising of its debt ceiling by Congress, which is controlled by the Republican rivals of President Joe Biden’s Democratic administration.

“Absent congressional action, the debt limit ‘X Date’ — the day when the federal government can no longer meet all its obligations in full and on time —will likely arrive in summer or early fall of 2023,” the Bipartisan Policy Center, or BPC, said in a statement.

The debt limit drama has become a yearly political fight in Congress between the Republicans and Democrats. A drawn-out struggle to raise the nation’s debt ceiling in 2011 triggered a financial crisis that culminated in major credit rating agency Standard & Poor's stripping the United States of its top triple-A credit status.

BPC said its warning of a potential June default overwrites its earlier prediction that the “extraordinary measures” the US Treasury has resorted to for paying government bills will last until the third quarter of 2023.

Treasury Secretary Janet Yellen informed Congress in January that the department had found a workaround to the debt default by delaying payment on non-critical obligations. The actions will buy the country time until Congress can pass legislation that will either raise the nation’s $31.4 trillion borrowing authority or suspend the limit for a period of time.