U.S. must raise debt limit by as early as June 1 to avoid default, Treasury says
The U.S. government could default “as early as June 1” unless Congress raises or suspends the debt ceiling, according to the Treasury Department, which implored lawmakers again on Monday to act swiftly to avert a fiscal crisis.
The new estimate followed less than a week after House Republicans delivered on their pledge to try to leverage the looming deadline to secure spending cuts, defying President Biden and officially touching off a political stalemate that could tip the fragile economy into another recession.
In a letter to lawmakers, Treasury Secretary Janet L. Yellen said the agency may be “unable to continue to satisfy all of the government’s obligations by early June, and potentially as early as June 1.” But she also cautioned that the projection is imprecise, given the variability of federal tax revenues, which have come in lower than anticipated in recent months.
Still, Yellen stressed with greater certitude that the economic consequences of inaction could be vast: She said a default could cause “severe hardship to American families, harm our global leadership position, and raise questions about our ability to defend our national security interests.”
“I respectfully urge Congress to protect the full faith and credit of the United States by acting as soon as possible,” Yellen said.
Since January, the Biden administration has taken a series of increasingly aggressive budgetary maneuvers to avoid breaching the debt ceiling, the statutory limit on how much the U.S. government may borrow to pay its existing bills. Only Congress can lift or pause the legal cap, which currently is set at roughly $31 trillion.
Repeatedly, Republicans raised the debt ceiling under President Donald Trump without including fiscal reforms, yet party lawmakers – now in control of the House in a time of divided government – have refused to afford the same support to Biden. Instead, House Speaker Kevin McCarthy has conditioned GOP support on their ability to achieve a lengthy list of policy demands.
In a bill adopted last week, House Republicans spelled out their agenda: They seek billions of dollars in spending cuts, the repeal of federal funds to fight climate change and pursue tax cheats, a set of new work requirements on welfare recipients and an end to Biden’s plan to cancel student debts. McCarthy has portrayed the so-called Lift, Save, Grow Act as a rejection of Biden’s demand for a condition-free increase in the debt ceiling.
But the president has threatened the veto the measure, and Democrats in control of the Senate have refused to take it up, arguing it could inflict financial harm on American families. Biden and McCarthy still do not even have plans to meet for discussions, more than two months after their inaugural conversation, raising the odds of a fiscal catastrophe as soon as this summer.
Speaking earlier Monday in the Rose Garden, Biden repeated his calls for lawmakers to raise the debt ceiling while blasting Republicans for what he characterized as “reckless hostage taking.”
More than a decade ago, Republicans similarly engaged in such brinkmanship: Their push to tie an increase in the debt ceiling to spending cuts spooked the stock market and triggered a downgrade in the country’s credit rating, which ultimately cost taxpayers an estimated $1 billion in higher interest rates on government bonds.
This year, investors already have started to hedge against the potential for another disruption, shifting away from bonds that mature around the date of the debt ceiling deadline. In another ominous sign, Fitch Ratings, which evaluates debt, warned that persistent dysfunction could result in another U.S. credit downgrade.
Other estimates have suggested the U.S. could reach the debt ceiling deadline – known in Washington as the “x-date” – later than June. A report from Goldman Sachs predicted that Congress likely has until July to act.