–Geithner/Bernanke/Dudley: ‘Remain Confident’ Ceiling To Be Raised Soon

By Brai Odion-Esene

WASHINGTON (MNI) – U.S. Treasury and Federal Reserve officials met
Friday to discuss the likely impact on the economy if the unthinkable
happens and Congress fails to raise the debt ceiling.

U.S. Treasury Secretary Geithner met with Federal Reserve Bank
Chairman Ben Bernanke and New York Federal Reserve President William
Dudley at Treasury.

“Officials from the Treasury, Federal Reserve Board and the New
York Fed met today to discuss the implications for the U.S. economy if
Congress fails to act,” according to a joint statement released after
the meeting.

They declared, however, that “we remain confident that Congress
will raise the debt ceiling soon.”

The U.S. not being able to meet its debt obligations could have a
very negative impact on the economy, forcing the Fed to step in once
again and prevent the country from slipping back into recession.

Ratings agency Standard & Poor’s believes it is unlikely that the
Fed would “sit on its hands if fiscal inaction or irresponsibility
destabilized the recovery.”

The firm said if an aggressive dose of austerity hurts growth and
brings back the risk of deflation — or if market liquidity begins to
dry up — “we think the Fed would likely step in to provide support to
the markets and offer another round of quantitative easing.”

A default by the U.S. could also have ramifications for the Fed’s
securities portfolio, given that as of July 20 the central bank held
$1.631 trillion in Treasury securities. This makes the Fed the single
largest domestic holder of U.S. government debt.

Earlier Friday, Geithner met with Paulson, his predecessor, “to
discuss the state of the economy, the ongoing efforts to find a balanced
approach to deficit reduction and the need for Congress to enact a
timely debt ceiling increase to avoid defaulting on the country’s
obligations.”

After the meeting, Paulson added his voice to those urging Congress
to compromise, make the “tough” decisions and break the impasse in debt
talks.

“Failing to raise the debt ceiling would do irreparable harm to our
credit standing, would undermine our ability to lead on global economic
issues and would damage our economy,” he said.

** Market News International Washington Bureau: 202-371-2121 **

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