US Treasury Secretary Janet Yellen has again called on politicians to raise the federal debt limit to prevent an unprecedented default, which will become a serious threat to the global economy. Unlike most developed countries, the U.S. sets a ceiling on how much it can borrow. Because the government spends more than it takes in, lawmakers must periodically raise that cap.
"A default would jeopardize our past achievements since the pandemic, trigger a global recession and undermine U.S. economic leadership," Yellen added.
On Tuesday, US President Biden and Speaker of the House of Representatives Kevin McCarthy failed to reach a compromise on raising the US debt limit, but they agreed to further talks and committed their aides to daily. Biden, McCarthy and the three other top congressional leaders are set to meet again on Friday.
Yellen said that even the threat of default could lead to a downgrade of the US government's credit rating, as happened in 2011, which in turn would increase interest rates on mortgages, auto payments and credit cards.
As for the global economy, Yellen said it remains in better shape than many predicted six months ago, with most G7 countries seeing a decline in annual inflation and improved growth forecasts.
"The United States has taken steps to strengthen confidence in its banking system after the collapse of three regional banks. But it is also extremely important to help developing countries. G7 members will coordinate their efforts to achieve a "timely and comprehensive" debt settlement for countries experiencing debt difficulties," Yellen said.