IMF puts the pressure on Congress to reach a deal
Christine Lagarde warns raising of US debt ceiling is 'mission critical'
The International Monetary Fund and the United States Treasury turned up the heat on members of Congress to end the deadlock over America's public finances yesterday, as it was confirmed that a key economic data release will be postponed because of the federal government shutdown.
Christine Lagarde, the IMF director general, warned that it was "mission critical" for Congress to vote to increase the federal debt ceiling before 17 October, when the Washington government is expected to run out of cash to fund its national debt.
"The government shutdown is bad enough but failure to raise the debt ceiling would be far worse," said Ms Lagarde in a speech to George Washington University in the capital. "It is mission critical that this be resolved as soon as possible".
That urgent message was echoed by a report from the Treasury, which stated that a default by the US could plunge the country into a recession "worse than any seen since the Great Depression".
The Treasury added: "A default would be unprecedented, and has the potential to be catastrophic: credit markets could freeze, the value of the dollar could plummet, US interest rates could skyrocket."
In a sign of the impact of the government shutdown, which began on Tuesday morning, the Department of Labour said that September's non-farm payroll jobs report would not be released today as statistics agencies are considered "non-essential", and staff have been put on unpaid leave.
Speaking on a visit to Maryland, President Barack Obama said the intransigence of Congress' Republicans over the budget and the debt ceiling sprang from their "obsession" with opposing his 2010 health insurance reforms, and warned that "the whole world will have problem" unless they backed down.
"This whole thing is about one thing – the Republican obsession with the Affordable Care Act. That seems to be the only thing that unites the Republican Party right now," he said.
In an indication of creeping traders' nerves over the impending debt ceiling, US 10-year Treasury bond yields fell by three basis points to 2.59 per cent even as the government's short-term financing costs crept up. America's one-month borrowing cost slipped below its six-month borrowing costs, with this "inverted yield curve" reflecting the heightened near-term risk of default.
Equity markets showed signs of fear too, with the Dow Jones Average trading down by 1 per cent yesterday afternoon. The S&P 500 index was down by a similar amount.
The president of the San Francisco Federal Reserve, John Williams, giving a speech in San Diego, said that the uncertainty surrounding the debt ceiling had created a "very frightening" situation, and that it justified the US central bank keeping monetary policy loose for longer.
The Federal Reserve surprised financial markets last month when it voted against tapering its $85bn-a-month asset purchases, as was widely expected.
There were also noises of concern from Europe over the situation. The European Central Bank board member Christian Noyer said the political impasse in Washington created a "global risk", and added that he did not dare imagine what would happen in the event of a default on US Treasury bonds.
- 1 The difference between a migrant and refugee, in one sentence
- 2 Miley Cyrus calls out hypocrisy of women’s nipples being taboo
- 3 Celebrity Big Brother 2015: Tila Tequila kicked off show after 'describing Hitler as a good man'
- 4 iPhone 5c to be discontinued, no iPhone 6c to replace it
- 5 Blood Moon and Supermoon: September to bring brightest – and dimmest – full Moon of the year on same night
The difference between a migrant and refugee, in one sentence
Spain accused of 'provocation' after letting Russian submarine refuel off Gibraltar
Allonautilus scrobiculatus: World's 'rarest' creature spotted for only the third time ever
Miley Cyrus calls out hypocrisy of women’s nipples being taboo
Celebrity Big Brother 2015: Tila Tequila kicked off show after 'describing Hitler as a good man'
Climate change: 2015 will be the hottest year on record 'by a mile', experts say
Labour leadership: Jeremy Corbyn accused of 'deluding' young supporters with 'claptrap'
'Women only' train carriages: Jeremy Corbyn unveils radical move to tackle public harassment
Black holes are a passage to another universe, says Stephen Hawking
Iain Duncan Smith 'should resign over disability benefit death figures', says Jeremy Corbyn
Iain Duncan Smith calls for urgent ESA overhaul as part of drive to cut down welfare costs
iJobs Money & Business
£25000 - £30000 per annum: Recruitment Genius: From modest beginnings the comp...
£35000 - £40000 per annum: Recruitment Genius: From modest beginnings the comp...
£15000 - £65000 per annum: Recruitment Genius: This is an exciting opportunity...
£18000 - £20000 per annum: Recruitment Genius: This is a fantastic opportunity...