Yellen warns that US will hit debt limit next week
US to hit its debt limit on Thursday; Treasury to deploy 'extraordinary measures'
Treasury Secretary Janet Yellen on Friday warned the U.S. will hit its debt limit on Thursday and that unless Congress takes swift action, the government could be unable to pay its bills as early as June.
In a letter addressed to the big four congressional leaders, Yellen said the Treasury Department will begin deploying so-called "extraordinary measures" to prevent the U.S. from defaulting on its obligation.
The emergency moves should give Congress until at least early June to raise or suspend the country's current $31.4 trillion borrowing limit, she added.
"Failure to meet the government’s obligations would cause irreparable harm to the U.S. economy, the livelihoods of all Americans, and global financial stability," Yellen said. "I respectfully urge Congress to act promptly to protect the full faith and credit of the United States."
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"Extraordinary measures" the Treasury could take include a range of items such as halting contributions to certain government pension funds, suspending state and local government series securities and borrowing from money set aside to manage exchange rate fluctuations, according to the Committee for a Responsible Federal Budget (CRFB).
In her letter, Yellen said the two extraordinary measures that Treasury expects to use are redeeming existing — and suspending new — investments of the Civil Service Retirement and Disability Fund and the Postal Services Retiree Health Benefits Fund. The department also plans to suspend reinvestment of the Government Securities Investment Fund of the Federal Employees Retirement System Thrift Savings Plan.
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The debt ceiling is the legal limit on the total amount of debt that the federal government can borrow on behalf of the public, including Social Security and Medicare benefits, military salaries and tax refunds.
Congress last voted to lift the debt ceiling in December 2021.
If the U.S. failed to raise or suspend the debt limit, it would eventually have to temporarily default on some of its obligations, which could have serious and negative economic implications. Interest rates would likely spike, and demand for Treasuries would drop; even the threat of default can cause borrowing costs to increase, according to the CRFB.
While the U.S. has never defaulted on its debt before, it came close in 2011, when House Republicans refused to pass a debt-ceiling increase, prompting rating agency Standard and Poor's to downgrade the U.S. debt rating one notch.
The uncertainty over the debt limit comes after House Republicans reclaimed the House majority, bringing to an end the one-party control enjoyed by Democrats over the past two years and threatening to revive a game of brinkmanship over raising or suspending the debt limit.
House Speaker Kevin McCarthy — who won the gavel after 15 rounds of voting — has indicated that Republicans could push for cuts to the federal budget, but said they "don't want to put any fiscal problems through our economy, and we won’t."
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McCarthy, R-Calif., has not ruled out raising the debt limit, pointing to a debt ceiling deal struck in 2019 between then-President Donald Trump and former Speaker Nancy Pelosi.
"I had a very good conversation with the president when he called me, and I told him I'd like to sit down with him early and work through these challenges," McCarthy said Thursday at a press conference.