The G7 affluent nations’ finance ministers will gather in Japan beginning Thursday. A standoff over the US debt ceiling looms as one of the most serious potential risks to the global economy.
Treasury Secretary Janet Yellen stated that one of her focuses at Niigata, a port city on the Japan Sea coast, will be to stress the need to resolve the national debt standoff.
“I will emphasise the importance of Congress acting to resolve the debt limit. In order to maintain America’s economic leadership and protect the global economy,” Yellen tweeted Thursday.
Yellen will also be looking to reassure her peers about recent bank failures, which have prompted concerns about the global financial system.
Finance ministers and central bank governors are gathering for three days ahead of the G7 summit in Hiroshima later this month.
Joe Biden said Wednesday that he and congressional leaders met Tuesday for a “productive” discussion about raising the US’s debt ceiling. They will meet again on Friday to attempt to avoid an unprecedented government default as early as June 1. If lawmakers in the divided Congress do not agree to raise the debt ceiling.
Biden claimed he was “absolutely certain” the US could avoid a default. Claiming that failing to honour America’s obligations, which underpin most of the world’s finances, “is not an option.”
Biden said it was “possible but not likely” that his trip to Japan, Australia, and Papua New Guinea later this month would have to be rescheduled.
In statements prepared ahead of Thursday’s meetings, Yellen stated that improving the global financial system is a top G-7 goal. A renewed show of support for Ukraine is also in order. As a coalition of over 30 countries aims to inflict hefty economic consequences on Russia as a result of its war.
She described Biden’s “historic” expenditures in modernising US infrastructure. A step towards increasing the resilience of an economy. Whose reliance on global supply chains was put to the stress during the COVID-19 pandemic.
“We are taking a broad range of individual and joint actions to bring down inflation, sustain growth, and help mitigate the impact of external shocks. Including those affecting developing countries,” she said.
U.S. banks tightened lending standards
The Federal Reserve said this week in a report that U.S. banks tightened lending standards. For business and consumer loans in the aftermath of three large bank failures. Which were exacerbated in part by the central bank’s sharp increases in interest rates to combat inflation. Which soared to four-decade highs following the pandemic.
In late March and early April, the Fed examined 65 U.S. institutions and U.S. branches of 19 foreign banks, long after Silicon Valley Bank and Signature Bank failed in early March, sparking the latest round of bank turbulence. First Republic Bank broke earlier this month, becoming the country’s second-largest bank failure in history.
Rate hikes are intended to limit lending and borrowing, but they can overshoot their target, sending the economy into recession. Banks’ moves to restrict lending could put even more pressure on firms and individuals.
Inflation has stubbornly remained high. Consumer prices in the United States rose 0.4% in April, up from 0.1% in February to March, and measures of underlying inflation remained high, indicating that further declines in inflation are likely to be slow and bumpy, despite the fact that the annual increase of 4.9% was the smallest in two years.