The country has been stuck in a government shutdown since 1 October, as the Republicans and the Democrats have failed to reach a decision over next year’s budget since the weekend.
However, Lagarde (pictured) said the US faces a much worse problem if it fails to raise the debt ceiling by 17 October, the day Washington hits its borrowing limit, as the country may be forced to default on its debt.
She said that failing to raise the ceiling, which currently stands at $16.7trn (£10.3trn), would send shockwaves across the entire global financial system.
She was quoted by the Telegraph saying: “The government shutdown is bad enough, but failure to raise the debt ceiling would be far worse, and could very seriously damage not only the US economy, so it is ‘mission-critical’ that this be resolved as soon as possible.”
Her comments were echoed by the US Treasury, which has warned Congress that a deadlock over the debt ceiling could lead to a recession “comparable or worse than the 2008 financial crisis” and a default would be “unprecedented and has the potential to be catastrophic”.
Meanwhile, the US jobs report, widely used by economists as an indicator of economic recovery, has been delayed due to the shutdown.
Wall Street has continued to edge lower overnight, with the S&P 500 closing 0.9% down at 1,677, as spooked investors took profits.
