Treasury Secretary Janet Yellen says failure to raise the U.S. debt limit could lead to the unthinkable: a default on government payment obligations. That's an outcome the White House on Friday warned could plunge the economy into recession.
If the impasse in Congress over the$28.5 trillion debt limit isn't resolved before an October deadline, what would the Federal Reserve - the backstop for U.S. financial markets as the lender of last resort - be prepared to do?
The plan included a process for managing government payments, given the Fed's expectation that Treasury would prioritize principal and interest but would make day-by-day decisions on whether to cover other obligations. Policymakers also mapped out an approach to managing market strains and financial stability risks stemming from a technical default.
Other actions sketched out in briefing notes and during the meeting were more controversial, including providing direct support to money markets by buying defaulted Treasury bills, or simultaneously selling Treasuries that are not in default and buying ones that are."The economics of it are right, but you'd be stepping into this difficult political world and looking like you are making the problem go away," he said at the time.
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