Yellen warns of US default threat till early June, urges debt ceiling to be raised

WASHINGTON, Jan 13 (Reuters) – US Treasury Secretary Janet Yellen on Friday said the United States is likely to reach the $31.4 trillion statutory debt limit on January 19, forcing the Treasury Department to make exceptional cash take management action that is likely to prevent a default by early June.

“Once the limit is reached, the Treasury Department must take certain exceptional measures to prevent the United States from defaulting on its commitments,” Yellen said in a letter to incoming Republican House Speaker Kevin McCarthy and other congressional leaders.

She urged lawmakers to act quickly to raise the debt ceiling to protect “the full confidence and creditworthiness” of the United States.

“While the Treasury Department is unable at this time to estimate how long extraordinary measures will allow us to continue to meet government obligations, it is unlikely that cash and extraordinary measures will be exhausted before early June,” the statement said To write.

Republicans, who now control the House of Representatives, have threatened to use the debt ceiling as leverage to demand spending cuts from Democrats and the Biden administration. This has raised concerns in Washington and on Wall Street about a fierce debt-ceiling battle this year that could be at least as destructive as the protracted 2011 battle that entailed a brief US credit downgrade and years of forced domestic politics cuts in military spending.

The White House said Friday after Yellen’s letter it would not negotiate a debt ceiling hike.

“This should be done without strings attached,” White House spokeswoman Karine Jean-Pierre told reporters. “There will be no negotiations about that.”

House Republicans plan to introduce a “debt prioritization” measure by the end of March that would require the U.S. Treasury Department to resume certain payments once it hits the debt ceiling, but details have not yet been finalized, one with the plan said person familiar with Reuters. The proposal was first reported by the Washington Post.

The Republican plan will require the Treasury Department to continue making interest payments on the debt, the Post reported, citing sources. It may also stipulate that the Treasury Department should continue to make payments for Social Security, Medicare and veterans’ benefits and fund the military, the newspaper said.

The plan was part of a private deal struck this month to resolve the standoff between right-wing hardliners in the House of Representatives and McCarthy over his election as Speaker of the House, the Post said.

Yellen’s estimate, expressing confidence that the government could only pay its bills until early June without raising the limit, marks a deadline significantly earlier than some outside budget analysts’ forecasts that the government would exhaust its liquidity and borrowing capacity – the so-called “X-date” – sometime in the third quarter of the 2023 calendar.

Analysts have noted that some Treasury bills maturing in the second half of the year carry a premium in their yields that could pose an increased risk of default in this window.

“You could read this in part as an attempt to get Congress to act sooner rather than later,” Bipartisan Policy Center economics director Shai Akabas said, adding that the Treasury Department is conservative in its approach.

Yellen said there was “significant uncertainty” about how long extraordinary measures could stave off the default due to a variety of factors, including the challenges of projecting government payments and receipts months into the future.


On Wednesday, Treasury Department data showed the U.S. federal debt was $78 billion below the limit, with the Treasury Department’s operating cash balance of $346.4 billion. The department on Thursday reported an $85 billion December deficit as revenue slacked and spending rose, particularly on debt interest costs.

Yellen said in her letter that the Treasury Department expects to suspend new investments in two state pension funds for pensions and healthcare this month, as well as suspend reinvestments in the Government Securities Investment Fund, or G Fund, part of a savings plan for federal employees. Pension investment will be restored once the debt ceiling is raised.

“The use of extraordinary measures allows the government to meet its obligations only for a limited time,” Yellen wrote to McCarthy and other congressional leaders.

“It is therefore crucial that Congress acts in a timely manner to raise or suspend the debt limit. Failure to meet government commitments would irreparably damage the US economy, the livelihoods of all Americans, and global financial stability,” Yellen wrote.

Reporting by Kanishka Singh and David Lawder; Additional reporting by David Morgan, Richard Cowan and Ismail Shakil; writing by David Lawder and Tim Ahmann; Edited by Diane Craft, Andrea Ricci and Grant McCool

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