By Dan Burns

(Reuters) – The Federal Reserve may not be able to shield the economy and financial markets from the effects of a U.S. debt default, the central bank’s chief said on Wednesday as he urged Congress to raise the country’s debt limit to avoid that catastrophic risk.

“It’s just very important that the debt ceiling be raised in a timely fashion so that the United States can pay its bills as and when they come due,” Fed Chair Jerome Powell said. “The failure to do that could result in severe damage to the economy and financial markets, and it’s just not something we should contemplate.”

Asked at a press conference following the Fed’s latest monetary policy meeting if the central bank is dusting off an emergency response to a U.S. default first devised about a decade ago, Powell said: “No one should assume the Fed or anyone else can fully protect the markets or the economy in the event of a failure.”

The federal debt ceiling of $28.4 trillion is a matter at which U.S. legislators are fighting.

According to the Senate’s No. 2, the Senate will vote on next week’s proposal to increase Washington’s borrowing power and keep the government funded. The Senate could vote next week on Washington’s borrowing authority and funding the government, according to a House Democrat. A House Democrat also warned against Republican opposition that it might lead to a historical default on our nation’s debt.

Failure to increase or suspend the debt by September 30 may result in a third partial government shutdown over the last decade. Failing to act by October mid-October may result in a much more disastrous default, which could send the United States into deep recession. It could also cause long-term economic harm.

Republicans are opposed to any increase in a campaign to pressure Democrats into reducing President Joe Biden’s $3.5 trillion domestic spending plan. Democrats insist that the debate over the debt ceiling has nothing to do the Biden administration’s agenda.

Powell refused to confirm whether he had spoken with lawmakers or officials from the Treasury Department about emergency plans. A similar national debt ceiling crisis was faced in 2013. At the time Fed policymakers, including Powell (then just a Fed board member), mapped out possible solutions to financial market stress.

It included a list of potential actions for the Fed to minimize the consequences of any default. These include prioritizing payments, expanding its asset purchasing to include defaulted Treasuries and increasing its priority payments.

In this regard, the Fed could not have chosen a worse time for their current dispute. Officials agreed Wednesday that a slower pace in Treasuries’ and mortgage-backed securities purchases of $120 million per month “may soon be justified” due to ongoing economic improvements and the Fed’s progress towards its goal of maximum employment and price stability.