Investing.com - Federal Reserve Bank Governor Christopher Waller has made it clear that the ongoing debt-ceiling crisis in the United States will not impact his decision regarding interest rates at next month's Federal Open Market Committee (FOMC) meeting. He is confident that Congress and President Biden's administration will successfully reach an agreement before then.
Waller expressed his belief that a resolution would be reached due to the potentially disastrous consequences of failing to do so. He questioned why anyone would want to risk destabilizing America's financial system through such actions.
During a recent interview following a speech in Santa Barbara, Waller addressed concerns about Treasury-bill yields set to mature early next month skyrocketing above 7%. This spike has been fueled by growing apprehensions over unresolved debt-ceiling negotiations, which could result in the US defaulting on payment obligations.
The responsibility of resolving this issue lies with Congress and President Biden, according to Waller. While he acknowledges short-term spikes in yields are beyond his control, he doesn't appreciate being put into this difficult situation by lawmakers.
Waller further explained that although the Federal Reserve can intervene when there are issues within the Treasury market, they've never faced people fleeing from Treasuries en masse before. Such unprecedented circumstances place stress on their ability to respond effectively.
At their earlier May gathering, FOMC officials discussed raising the debt ceiling as well as preparing strategies for mitigating potential future financial stability risks using available tools provided by central banks.
As talks continue between White House negotiators and House Republicans concerning raising the debt ceiling ahead of a possible catastrophic default event, Waller maintains that upcoming decisions about interest rate adjustments rely heavily on key data during these crucial weeks leading up to June’s FOMC meeting. Although the tightening cycle may not yet be complete, it's too early to make a definitive judgment.
Over the past 14 months, interest rates have increased by five percentage points in an effort to control inflation that is currently more than double the Fed's 2% target goal. With benchmark rates now within a range of 5% to 5.25%, Federal Reserve Chair Jerome Powell has suggested that policymakers can afford to closely monitor data and evolving economic conditions before making any further decisions.