Italian Finance Minister Giancarlo Giorgetti talks with Bank of Italy Governor Ignazio Visco before the start of the G-7 Finance Ministers and Central Bank Governors meeting at the Toki Messe Convention Center in Niigata, Japan on May 5. 11, 2023. | Photo Credit: AP
Financial leaders from the Group of Seven rich nations have been meeting in Japan since May 11 as the standoff over the US debt ceiling escalates. Potential default is one of the biggest threats to the global economy.
Treasury Secretary Janet Yellen said one of her priorities in Niigata, a port city on the Sea of Japan coast, would be to stress the importance of resolving the impasse over the national debt in the world’s largest economy.
“Default is clearly unthinkable,” he told reporters before the start of extensive meetings. “America should never default. This would rank as a catastrophe,” she said.
He said the spending impasse has left the government unable to pay for teachers in classrooms, medical care for veterans and important benefits to many Americans. It is also undermining American economic leadership.
While in Japan, Ms Yellen is bound to reassure her counterparts on recent bank failures, which have raised concerns over risks to the global financial system.
Finance ministers and central bank governors are meeting for three days ahead of the G-7 summit later this month in Hiroshima.
President Joe Biden said on May 10 that he and congressional leaders had a “productive” meeting on May 9 on trying to raise the nation’s debt ceiling. They will meet again on Friday to try to avert the risk of an unprecedented government default on June 1 if lawmakers in a divided Congress do not agree to raise the debt ceiling.
Mr Biden said he was “absolutely certain” the country could avert a default, declaring that failure to meet America’s obligations, on which much of the world’s finances are based, “is not an option.” Mr Biden said it was “possible but unlikely” he would need to postpone his trip to Japan, Australia and Papua New Guinea later this month.
In prepared remarks ahead of the May 11 meetings, Ms. Yellen said that strengthening the global financial system is an important priority for the G-7. So is a new show of support for Ukraine as a coalition of more than 30 nations seeks to impose a heavy economic cost for its war on Russia.
He said Mr Biden’s “historic” investment in modernizing US infrastructure was a step towards improving the resilience of an economy whose reliance on global supply chains had been tested during the COVID-19 pandemic.
“We are taking a wide range of individual and joint actions to help reduce inflation, sustain growth and mitigate the impact of external shocks, including in developing countries,” she said.
But he added, “Even though we face downside risks, I believe the global economy remains in better shape than many predicted six months ago.” The Federal Reserve said in a report this week that US banks raised their lending standards for business and consumer loans after three significant bank failures, which brought on a sharp increase in interest rates by the central bank to tame inflation. Was. At a four-decade high after the pandemic.
The Fed surveyed US branches of 65 US banks and 19 foreign banks in late March and early April, just after the collapses of Silicon Valley Bank and Signature Bank in early March touched off the latest round of bank turmoil. First Republic Bank failed earlier this month in the second largest bank failure in US history.
A rate hike tends to slow lending and borrowing, but may exceed its target, pushing the economy into recession. Banks’ moves to further limit lending could further squeeze businesses and consumers.
Inflation continues to remain high. Consumer prices in the United States rose 0.4% in April, up sharply from a 0.1% increase from February to March, and measures of underlying inflation remain high, a sign that further declines in inflation are likely to be slow and bumpy. , even though the annual 4.9% increase was the smallest in two years.
Other G-7 economies are struggling with rising prices even more, prompting their central banks to raise interest rates that hit record highs in the early days of the pandemic.
G-7 financial leaders met in Washington just a month ago on the sidelines of the annual meeting of the World Bank and International Monetary Fund, where they reiterated their commitment to help economies deal with the impact of the war in Ukraine, so that the huge Debt countries can be helped in their solution. financial vulnerability, strengthening global health systems and helping to combat climate change.
The G-7 countries include Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. Other invitees to the meetings in Niigata include the European Union, the IMF and the World Bank, and the finance ministers of Brazil, Comoros, India, Indonesia, South Korea and Singapore.