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Federal Reserve Chairman Jerome Powell steers clear of an ongoing debt ceiling.

“There’s only one way forward here, and that’s for Congress to raise the debt ceiling so that the United States can pay all of its obligations when they come due,” he said at a news conference Wednesday.

Powell spoke to reporters after the Federal Reserve raised short-term interest rates by a quarter point on Wednesday, pushing its benchmark interest rate to the highest level since October 2007.

When asked about the debt ceiling and the role of his central bank, he gave little indication of how the Fed might jump in the event of a default. Policymakers are debating whether the Treasury should or even can prioritize payments with the help of the Federal Reserve to take actions such as paying bondholders first if the government defaults.

“No one should assume that the Fed can protect the economy from the consequences of not acting in time,” Powell said, pushing the issue back to Congress. “We do not participate in those discussions. We are the fiscal agent.”

Federal Reserve Chairman Jerome Powell addresses reporters after the Fed raised its target interest rate by a quarter percentage point during a news conference at the Federal Reserve Building in Washington. (Reuters/Jonathan Ernst)

Powell’s remarks came as President Joe Biden and House Speaker Kevin McCarthy sat down for their first one-on-one meeting on the financial situation Wednesday. Negotiations between Republicans and Democrats have been contentious and are expected to last into the summer.

Treasury Secretary Janet Yellen previously ruled out the idea of ​​so-called “preemption,” saying the Treasury couldn’t do it even if it wanted to. Yellen’s department is using what are called “emergency measures” to avoid a crisis. But the accounting maneuvers are likely to run out this summer and could push the U.S. economy and markets into uncharted territory if the possibility remains that the U.S. government can’t pay its bills.

“I believe that the Congress will finish its work”

During his speech, Powell said the central bank was watching the situation closely but did not weigh in on more controversial ideas about how the Fed could get involved if the situation turned into a crisis.

Creating a trillion-dollar coin that would theoretically reside at the Fed if it were minted, or having the central bank buy back Treasury bonds to avoid default, are just two of the many ideas that have been floated among policymakers, professors and academics. economists.

“In terms of our relationship with the Treasury, we are their fiscal agent, and I’m just going to leave it at that,” said Powell, who addressed the debt limit situation twice during the nearly hour-long news conference.

U.S. House Speaker Kevin McCarthy, Republican of California, looks on as he meets with Jordan's King Abdullah II at the U.S. Capitol in Washington on January 31, 2023.  (Photo by SAUL LOEB / AFP) (Photo by SAUL LOEB/).  AFP via Getty Images)

Speaker of the U.S. House of Representatives Kevin McCarthy, R-California, meets with King Abdullah II of Jordan on January 31, 2023, at the U.S. Capitol in Washington, D.C. (Photo by SAUL LOEB/AFP via Getty Images)

Powell also dismissed the notion Wednesday that the debt ceiling talks had any bearing on decisions to loosen or tighten the IMF’s balance sheet in the coming months.

“It’s very difficult to think about all the possible consequences,” he said.

Last week, advocates of a trillion-dollar cut virtually rallied to argue that figures like Powell and Yellen may eventually be forced to consider more controversial ideas, no matter what they say now, if the standoff doesn’t ease.

Powell, however, seems hopeful that the issues will end up moot.

“I believe that Congress will end up acting as it should eventually raise the debt ceiling,” he said. “I believe it will happen.”

Ben Vershkull is the Washington correspondent for Yahoo Finance.

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