U.S debt ceiling debate dominates G7 meeting

A standoff in Washington over raising the U.S. debt ceiling has overshadowed a meeting of Group of Seven (G7) finance leaders.

This has heightened U.S. recession fears as central banks seek a soft landing for the global economy.

The central bank governor of host, Japan, said the U.S. debt crisis may be discussed at the G7 gathering, adding the group must stand ready to respond to any market repercussions.

“I have faith U.S. authorities will do their best to prevent it from happening,” Kazuo Ueda told reporters on Thursday, when asked about the chance of the United States defaulting on its debt.

“The immediate fallout is something U.S. authorities would have to deal with. But (the G7 group) will likely scrutinise the situation … and respond as needed,” he said, adding that Japanese authorities were watching developments closely.

Treasury Secretary Janet Yellen was expected to face questions from her G7 counterparts, meeting in the Japanese city of Niigata, on how Washington intends to prevent turbulence in financial markets, already jittery after the recent failure of three U.S. regional banks and strains in Europe.

“A default would threaten the gains that we’ve worked so hard to make over the past few years in our pandemic recovery. And it would spark a global downturn that would set us back much further,” Yellen said in Niigata.

President Joe Biden has signalled the chance of cancelling his trip to next week’s G7 summit if the debt standoff is not solved in time, warning that failure to quickly raise the limit on the government’s permitted borrowing from the current $31.4 trillion could throw the U.S. economy into recession.

Reuters/Hauwa Abu