Powell’s debt-limit alarm echoes stealth lobbying effort in 2011

In the worst political showdown over the U.S. debt limit to date, a littleknown former Treasury official in 2011 helped convince lawmakers that raising the ceiling was the only option. He’s back at it now, but from a much higher perch: chair of the Federal Reserve.

Jerome Powell, a financier who was also then serving at a Washington thinktank, criss-crossed Capitol Hill in 2011 to shoot down alternatives to boosting the debt limit, at a time when a number of Republicans were shrugging off warnings from then President Barack Obama’s Treasury Department.

Then — as now — some lawmakers were starting to question whether a payments default would really be so bad. Powell rattled the cage until a last-minute deal averted a default. While his interventions didn’t forestall a damaging downgrade of the U.S. sovereign credit rating, they did pave Powell’s path to join the Fed board.

Next week, the Fed chair will be heading to Capitol Hill to testify on the economy just as

U.S. central bankers fret over another debt-limit showdown. Parallels to 2011 run deep, with Republicans again in charge of the House and again seeking sweeping cuts to spending as a condition for raising the ceiling. Questions swirl about whether their conservative flank agrees with the GOP leadership that a default must be avoided.

No unofficial sherpa has emerged to play Powell’s 2011 role, months before the Treasury risks a payments default. That’s after Wall Street executives with Republican ties last month shared private concerns at the Davos, Switzerland gathering that Speaker Kevin Mccarthy and fellow House Republicans hadn’t grasped the economic and financial impact posed by a default, or their proposed payment-prioritization plan.

Powell himself has started reprising his message from over a decade ago.

“So, I feel like I have to say this — there’s only one way forward here, and that is for Congress to raise the debt ceiling so that the United States government can pay all of its obligations when due,” he said at a Feb. 1 press conference. “Any deviations from that path would be highly risky.”

He’ll have an opportunity to deliver that message directly to lawmakers next week, when he testifies at the Senate Banking Committee March 7. He’s also expected before the House Financial Services panel.

Twelve years ago,

Powell — who declined further comment for this article through a Fed spokesperson — joined the debt-limit bomb squad almost by chance.

He was affiliated at the time with the Bipartisan Policy Center, and had deep knowledge of the Treasury’s payments system from having served in the department under President George H.W. Bush. Powell was well aware about how lumpy the Treasury’s inflows and payments can be in any given month, and he believed deeply that there was simply no alternative to raising the debt ceiling, people familiar with his briefings recalled.

Prioritizing payments for some federal obligations over others — something GOP lawmakers are again looking at today — simply would not mesh with Treasury’s system, even if theoretically possible, in Powell’s experience.

By 2011, Powell had spent two decades away from government, including years with the famed private-equity firm Carlyle Group. His obscurity showed, as his first sessions on Capitol Hill were with junior staffers, but soon after he began meeting with members of Congress.

“He wasn’t a wellknown entity among policymakers,” said Shai Akabas, the BPC’S current director of economic policy, who joined Powell for briefings at the time.

Former aides recall that back then there was a lack of neutral, transparent, public information about the debt limit, such as when it might be breached and how the Treasury’s payments system worked.

Powell’s briefings touched on the mechanics that make it effectively impossible to cherry-pick which bills to pay.