Treasury Secretary Janet Yellen warned Congress in a letter Monday that the U.S. government might not be able to pay the bills in just over a week — as early as June 1 — if Congress does not act to raise or suspend the debt ceiling.
Her letter came as President Biden and House Speaker Kevin McCarthy were to meet at the White House to continue negotiations over a debt limit deal, amid escalating concerns that the U.S. could default on the nation’s debts for the first time if Congress does not act in time.
“With an additional week of information now available, I am writing to note that we estimate that it is highly likely that Treasury will 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 wrote Monday.
The treasury secretary has been regularly updating Congress on when the U.S. could run out of borrowing authority. The department has been closely tracking funds coming in from tax receipts coming in and money going out to pay the nation’s bills.
On Jan. 19, the U.S. reached its statutory debt limit of $31.4 trillion, and the Treasury Department has been paying the bills with so-called extraordinary measures, like putting a hold on contributions to government workers’ retirement and health care funds. This has given the government enough financial capacity to handle expenses until about June.
When does the debt ceiling need to be raised?
Yellen’s latest warning on Monday closely aligned with her letter last week, in which she said that the U.S. was at risk of default as soon as June 1 or could run out of money within days or weeks if Congress does not address the debt limit.
In an interview on Sunday with NBC News’ “Meet the Press,” Yellen called early June a “hard deadline” on the debt limit. She also said the government’s ability to make it until June 15, when more tax payments are due, was “quite low.”
Revenue levels are being closely monitored by the financial sector. Last week, the Treasury had roughly $68 billion in cash on hand and another $92 billion in untapped extraordinary measures at its disposal.
Yellen warned on Monday that the timeline was based on “currently available data, and federal receipts, outlays, and debt could vary from these estimates.”
In a new report Monday, Wells Fargo economists took a only slightly more optimistic view than the Treasury Department of how long the government has before money runs out. But their assessment is that even in the best case scenario, the Treasury’s general account would be “extremely low” — with less than $50 billion in the first half of June if the debt ceiling is not raised. They characterized a 50-50 chance of default in early June as “very concerning.”
The Bipartisan Policy Center (BPC) estimated earlier in May that a U.S. default could occur between June and early August. In an analysis released Tuesday, it suggested this could occur between June 2 and June 13.
“Come early June, Treasury will be skating on very thin ice that will only get thinner with each passing day,” said Shai Akabas, executive director of BPC’s Economic Policy Program.
Debt ceiling negotiations
Debt ceiling negotiations are continuing, but the White House and House Republicans are “far apart,” Republican Rep. Garret Graves, who is one of the House GOP negotiators, told reporters Tuesday.
The negotiating teams representing the White House and House Speaker Kevin McCarthy are huddling again Tuesday, after President Joe Biden and McCarthy met at the White House Monday evening. Both McCarthy and the president described their meeting as “productive,” even as members representing McCarthy continue to lambaste the administration’s approach. Graves says he doesn’t think talks are going well.
Republicans want to see 10 years of spending caps while the Biden administration is seeking a shorter time frame.
Mr. Biden returned to Washington late Sunday, cutting short an overseas trip to deal with the debt limit, after attending the G7 Summit of world leaders in Japan.
Any agreement reached between Republicans and the White House would need to pass not just in the Republican-controlled House but also the Democratic-controlled Senate. McCarthy said Monday the parties must reach a deal this week to get it through the House and send it to the Senate.