The Federal Reserve’s decision on whether to continue raising interest rates comes at a difficult economic time for the United States, with President Biden and Republicans in Congress locked in a standoff over how to raise the nation’s debt limit.

High inflation and instability in the banking system continue to weigh on the US economy, but a more pressing concern is the prospect of a default. The federal government may not be able to pay all its bills on time as soon as June 1, Treasury Secretary Janet L. Yellen warned this week, setting the stage for a self-inflicted economic calamity.

Analysts and economists have increasingly warned that a default could send financial markets crashing and send the United States, and perhaps the world economy, into recession.

A Treasury official pointed to the debt limit as one of the main risks facing the economy, saying that if the debt limit is not increased, a financial crisis would ensue. crisis of “historic proportion” and a sharp economic contraction that would leave millions of Americans facing unemployment. It would also likely increase borrowing costs and prevent Social Security and Medicare recipients from receiving their benefits.

The Fed has insisted that it is up to Congress to act to raise the debt limit to $31.4 trillion, and Jerome H. Powell, the Fed chairman, warned earlier this year that failure to do so would inflict long-term damage on the Fed. US economy.

“Congress really needs to raise the debt ceiling”, Mr. Powell told the Senate Banking Committee in March. “If we don’t, I think the consequences are hard to estimate, but they could be extraordinarily adverse and cause lasting damage.”

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