U.S. Treasury Secretary Janet Yellen notified Congress on Monday that the U.S. could default on its debt as early as June 1, if legislators do not raise or suspend the nation’s borrowing authority before then and avert what could potentially become a global financial crisis. The warning appeared to kick off a new round of talks next week between the president and lawmakers.
In a letter to House and Senate leaders, Yellen urged congressional leaders “to protect the full faith and credit of the United States by acting as soon as possible” to address the $31.4 trillion limit on its legal borrowing authority. She added that it is impossible to predict with certainty the exact date of when the U.S. will run out of cash.
“We have learned from past debt limit impasses that waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States,” Yellen said in the letter.
Also Monday, the Congressional Budget Office reported that it saw a greater risk of the U.S. running out of funds in early June. CBO Director Phillip L. Swagel said because of less-than-expected tax receipts this filing season and a faster IRS having processed already received returns, “Treasury’s extraordinary measures will be exhausted sooner than we previously projected.”
The warnings appeared to break a stalemate between the White House and Congress over negotiating a solution. Later on Monday, President Joe Biden invited the four Congressional leaders to the White House on May 9 to continue talks on a spending bill that will ultimately raise the debt limit.
Administration and congressional officials confirmed the individual calls to lawmakers and the meeting date, insisting on anonymity to discuss the plans. Sen. Minority Leader Mitch McConnell, R-Ky., said he spoke with Biden and expects to speak with him again, though he did not say whether he will attend the meeting.
Biden plans to stress that Congress must take action to avoid default without conditions and will discuss the urgency of preventing default, as well as how to begin a separate process for passing a separate fiscal 2024 budget. But if even the lawmakers talk, there is no guarantee of progress on an issue that has revealed a gulf in how Democrats and Republicans think the country should be governed.
Biden and House Speaker Kevin McCarthy, R-Calif., are at an impasse on lifting the government’s borrowing authority. The president has called for a clean increase to the $31.4 trillion cap — meaning without any cuts to government spending — while McCarthy and GOP lawmakers are demanding spending cuts in return and passed a bill with $4.8 trillion in deficit savings over 10 years last week.
McCarthy has called on Biden to engage in talks. But as recently as shortly after noon on Monday, the president said in a speech that the GOP congressional leader needed to first make a commitment that the U.S. government would not default. House Republicans passed a bill last week that would cleave discretionary spending over the next decade in return for increasing the debt limit by $1.5 trillion or until March 31, 2024, possibly setting up another showdown going into that year’s presidential election.
In January, Yellen sent a letter to congressional leaders, stating that her department had begun resorting to “extraordinary measures” to avoid a federal government default.
The Treasury said Monday it plans to increase its borrowing during the April to June quarter of this year, even as the federal government is close to breaching the debt limit.
The U.S. plans to borrow $726 billion during the quarter. That’s $449 billion more than projected in January, due to a lower beginning-of-quarter cash balance and projections of lower-than-expected income tax receipts and higher spending.
While Russia’s invasion of Ukraine remains a burden on U.S. economic growth, Treasury officials say the debate over the debt ceiling poses the greatest risk to the U.S. financial position.
Eric Van Nostrand, acting assistant secretary for economy policy, said in a statement that “even if Congress ultimately raises the debt limit before a default occurs, the ensuing uncertainty could raise borrowing costs and induce other financial stress that would weaken our labor market and our standing in the world.”
“There is no time to waste,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center, which forecasts the so-called X-date when the government exhausts its extraordinary measures. His organization will also provide an updated X-date projection in the coming days, he says.
“The U.S. government is again within mere months or even weeks of failing to make good on all its obligations. That is not a position befitting of a country considered the bedrock of the financial system, and only adds uncertainty to an already shaky economy.”
Yellen said last week at the Cap-to-Cap policy conference in Washington: “Congress must vote to raise or suspend the debt limit, and it should do so without conditions and it should not wait until the last minute. I believe that is a basic responsibility of our nation’s leaders to get this done.”
With additional files from AP’s Josh Boak, Mary Clare Jalonick And Lisa Mascaro
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