Testifying before the Senate Banking Committee, the Fed chairman said it was "essential" for Congress to raise the legal limit on the federal debt before the U.S. government defaults on its loans.

"We've always paid our bills, and it simply must happen that Congress raises the debt ceiling in time to allow that to happen," Powell said.

The consequences of inaction "would be highly unpredictable," Powell added, warning that "no one should assume that the Fed or any other agency can be relied upon to shield our economy from the short-, medium- and long-term negative consequences of such an act."

Powell's remarks come as lawmakers and the Trump administration face growing pressure to strike a deal to avoid mandatory budget cuts and lift the debt ceiling, which was automatically reimposed March 1.