Federal Reserve Chairwoman Janet Yellen blasted Donald Trump Donald John TrumpUS reimposes UN sanctions on Iran amid increasing tensions Jeff Flake: Republicans 'should hold the same position' on SCOTUS vacancy as 2016 Trump supporters chant 'Fill that seat' at North Carolina rally MORE’s suggestion that he would renegotiate on the nation’s debt if elected president, warning of “very severe” consequences.

Testifying before Congress, Yellen was asked indirectly by Sen. Bob Menendez Robert (Bob) MenendezKasie Hunt to host lead-in show for MSNBC's 'Morning Joe' Senators ask for removal of tariffs on EU food, wine, spirits: report VOA visa decision could hobble Venezuela coverage MORE (D-N.J.) what she made of Trump’s claims that the U.S. could load up on debt and “make a deal” with creditors if the economy soured.

ADVERTISEMENT

The presumptive Republican presidential nominee was not mentioned by name in the exchange, but Menendez asked Yellen specifically what would happen if a U.S. president pushed creditors to accept less than full payment on U.S. debt obligations.

Yellen launched a strong defense of the sterling reputation of U.S. Treasury bonds in global markets and made clear she believes the U.S. should make full payment on its debt a top priority.

“U.S. Treasury securities are the safest and most liquid benchmark security in the global financial system,” she told lawmakers. “They play a critical role in our financial markets, and the consequences of such a default, while they’re uncertain, I think there can be no doubt that it would be in the long run harmful to U.S. interests. At a minimum, it would result in much higher borrowing costs.”

She noted that she has long held the opinion that U.S. debt is sacrosanct, which she has previously expressed during pitched fights over raising the nation’s debt limit.

Yellen’s remarks came during testimony before the Senate Banking Committee Tuesday, where she indicated that the Fed is looking for more evidence of a solid economic recovery before raising interest rates further.

The Fed met earlier this month and decided not to raise interest rates after the May jobs report came in significantly below economist expectations. Yellen cited the slowdown on the jobs front as a major reason for the Fed’s decision to keep rates steady, despite a long-term effort to bring them back up from the historically low levels spurred by the financial crisis.

“The pace of improvement in the labor market appears to have slowed more recently, suggesting that our cautious approach to adjusting monetary policy remains appropriate,” she said.

At the same time, Yellen insisted that the overall U.S. economy was in a good place and said it would be highly unlikely for the nation to dip into a recession anytime this year.

But one major question looming for the Fed is what happens in Europe. On Thursday, British voters head to the polls to decide whether the United Kingdom should begin the process of removing itself from the European Union. Yellen warned that a “Brexit” could weigh heavily on financial markets and the global economy and could have an impact in the U.S. as well.

“Most analyses suggest it would have negative economic consequences for the U.K. and spillover in Europe,” she said. “I don’t want to overblow the likely impacts, but we’re aware of them. We’ll watch them and consider those impacts as we make future decisions on monetary policy.”

Yellen found herself playing defense from Democrats as much as Republicans Tuesday, as several key Democrats pressed Yellen on a growing issue of concern on the left: the lack of diversity at the top of the Federal Reserve’s institutions.

There has been a concerted campaign by activists to boost diversity among the top Fed ranks, noting that minorities and women have held almost none of the top Fed positions across the central bank’s 100-year history.

Sens. Sherrod Brown Sherrod Campbell BrownBipartisan praise pours in after Ginsburg's death Emboldened Democrats haggle over 2021 agenda Hillicon Valley: Russia 'amplifying' concerns around mail-in voting to undermine election | Facebook and Twitter take steps to limit Trump remarks on voting | Facebook to block political ads ahead of election MORE (D-Ohio), the top Democrat on the panel, and Elizabeth Warren Elizabeth WarrenBiden's fiscal program: What is the likely market impact? Warren, Schumer introduce plan for next president to cancel ,000 in student debt The Hill's 12:30 Report - Presented by Facebook - Don't expect a government check anytime soon MORE (D-Mass.), who is reportedly on Hillary Clinton Hillary Diane Rodham ClintonJeff Flake: Republicans 'should hold the same position' on SCOTUS vacancy as 2016 Momentum growing among Republicans for Supreme Court vote before Election Day Warning signs flash for Lindsey Graham in South Carolina MORE’s vice presidential shortlist, were among the members to press the issue.

Yellen said boosting diversity at the Fed is a priority, adding that progress had been made, although more is needed.

Warren also pressed Yellen on whether the Fed is prepared to crack down on the five large banks that have yet to put together a passable “living will” for regulators.

Under the Dodd-Frank financial reform law, the nation’s largest financial institutions have to craft a plan for their orderly wind-down should they collapse, which in turn must be approved by regulators. If they cannot craft a viable plan, regulators have the power to step in and order the banks to take steps to become safer.

In April, five banks — JPMorgan Chase, Bank of America, Wells Fargo, Bank of New York Mellon and State Street — did not pass the living will test. They have until October to make the necessary changes, according to the Fed and the Federal Deposit Insurance Corporation.

Warren, along with Sen. David Vitter David Bruce VitterLysol, Charmin keep new consumer brand group lobbyist busy during pandemic Bottom line Bottom line MORE (R-La.), pressed Yellen on what she would do if those banks cannot pass, arguing the Fed needs to be prepared to order higher capital requirements or even to break up the institutions if necessary.

Yellen declined to lay out an explicit plan Tuesday but vowed that regulators would do what is necessary to ensure the financial system is safe.

“I can’t precommit today as to what precisely our response will be,” she said. “There will be consequences.”