Federal Reserve Chairman Ben Bernanke has warned that threats by Congress not to raise the US debt limit had potentially serious consequences for the world’s largest economy.
“A government shutdown, and perhaps even more so a failure to raise the debt limit, could have very serious consequences for the financial markets and for the economy,” Bernanke said on Wednesday after a meeting of the Fed’s rate-setting Open Market Committee.
He warned that the central bank’s “ability to offset these shocks is very limited, particularly a debt limit shock.”
“It’s extraordinarily important that Congress and the administration work together to find a way to make sure that the government is funded, public services are provided, that the government pays its bills and that we avoid any kind of event like 2011, which had at least for a time a noticeable adverse effect on confidence and on the economy,” Bernanke said.
Opposition Republicans in Congress are preparing for a showdown with President Barack Obama over both a short-term spending measure to keep the government funded and a separate vote on increasing the nation’s debt limit.
House Speaker John Boehner said earlier on Wednesday that Republicans would tie the measures to efforts to stall implementation of Obama’s signature health care law.
The move sets up a showdown with the Democratic-controlled Senate that could cause Congress to run out of time before an existing spending measure ends, forcing the government to largely shut down.
In a meeting with business leaders, Obama denounced an “ideological fight” that avoids talking about the actual budget issues involved.
“You have never seen in the history of the United States the debt ceiling or the threat of not raising the debt ceiling being used to extort a president – or a governing party – and trying to force issues that have nothing to do with the budget and have nothing to do with the debt,” he said.