Treasury Secretary Janet Yellen on Monday reiterated her warning that her department could run out of cash as soon as June 1 unless Congress raises or suspends the federal debt limit.
“We still estimate that Treasury will likely no longer be able to satisfy all of the government’s obligations if Congress has not acted to raise or suspend the debt limit by early June, and potentially as early as June 1,” Yellen said in a letter to congressional leaders.
Writing two weeks after her previous notice, she added that she would update Congress again next week as more information becomes available. As of now, the date by when the Treasury will exhaust its special accounting maneuvers to stay within the debt limit could be “a number of days or weeks later” than early June, she said.
Yellen’s warning comes in during negotiations over the issue between White House staff and aides to Congressional leaders. House Speaker Kevin McCarthy said Monday that ongoing talks to avert a historic US default were yielding little progress, while President Joe Biden announced plans to meet with congressional leaders on Tuesday.
“We are nowhere near reaching a conclusion,” McCarthy said on Capitol Hill, adding that he felt that ongoing staff-level meetings are “not productive at all.”
Republicans have been demanding sweeping spending cuts before agreeing to raise the debt ceiling. Biden has said he’s willing to discuss measures to reduce the fiscal deficit, but that ought to be addressed separately from the debt-limit legislation.
Since hitting the current statutory limit of $31.4 trillion in January, the Treasury has been staving off a possible default on federal obligations by using special accounting maneuvers. Yellen’s most recent timeline reflects the department’s latest thinking on when that headroom is likely to be exhausted.
Yellen on Monday said that evidence of stress is already apparent in financial markets.
“We have already seen Treasury’s borrowing costs increase substantially for securities maturing in early June,” she said. “If Congress fails to increase the debt limit, it would cause severe hardship to American families, harm our global leadership position, and raise questions about our ability to defend our national-security interests.”
The Treasury Department said last week it had just $88 billion of extraordinary measures to help keep the government’s bills paid as of May 10. That’s down from around $110 billion a week earlier and means just over a quarter of the $333 billion of authorized measures were still available to keep the country from running out of borrowing room under the statutory debt limit.
Yellen has warned that the US risks a catastrophic default if the debt limit isn’t suspended or raised. She hasn’t spelled out what exactly the Treasury department would do in the case of going past the so-called X-date, though she warned that the federal government will have to renege on some payments if Congress doesn’t act. Past contingency planning can also offer some clues on what her options will be.
If the Treasury runs out of borrowing authority with Congress having failed to act, it would take the economy and markets into uncharted territory. A 2011 debt-limit showdown saw major damage to US consumer confidence and a sharp selloff in equities, even though lawmakers were able to rescue the situation in time.
--With assistance from Christopher Condon.
(Updates with more from letter, starting in third paragraph.)
