A letter from US Treasury Secretary Janet Yellen warns of potential “damage to business and consumer confidence.”
US Treasury Secretary Janet Yellen has sent a letter to Republican House Speaker Kevin McCarthy warning him that the federal government could reach its spending limit on June 1 if Congress does not raise the debt ceiling.
In the letter published Monday, Yellen said available data point to early June as the period when the government will no longer be able to meet its spending if Congress fails to raise the cap before then.
“Given current projections, it is imperative that Congress act as soon as possible to raise or suspend the debt limit in a manner that provides longer-term assurance that the government will continue to make its payments,” the letter reads.
While Yellen’s letter indicates that the US could default as early as June 1, the Treasury Secretary also noted that it is “impossible to predict with certainty the exact date when the Treasury will be unable to pay the government”.
Monday’s letter comes as US President Joe Biden has reportedly called for a May 9 meeting with Democratic and Republican leaders to discuss spending and the debt cap.
Experts have warned that a possible default would have serious consequences for the US economy: it could cause US creditworthiness to fall, leading to higher interest rates and a possible recession.
Raising spending limits in the US is a largely routine procedure, but one that has become increasingly contentious in recent years. To raise the debt ceiling this year, Republicans in Congress are pushing for massive cuts to social programs in exchange for their support.
The Biden administration has called for an unconditional increase in the debt ceiling, stating that debates over different programs could be fought during annual budget negotiations.
His concerns were echoed by fellow Democrats in the wake of Yellen’s letter, who called for a “clean” increase in the debt limit without haggling or addenda.
“We have about a month until the US defaults on its debt. Let’s be clear: These are not new expenses,” Sen. Mark Warner of Virginia tweeted Monday. “This is about paying bills we’ve already incurred. We cannot unleash economic catastrophe on the American people.”
Last week, the Republican-led House of Representatives passed a bill that agreed to raise the debt ceiling by $1.5 trillion in exchange for $4.5 trillion in cuts to programs such as health care for low-income communities, renewable energy and transportation.
The bill is considered dead upon arrival in the Democratic-controlled US Senate, and Biden has stated he would veto it. But its passage in the House is regarded as a victory for McCarthy, who has since called on Democrats to “do their job” to pass the bill and avoid a default.
“In our history, we have never defaulted on our debts or failed to pay our bills,” White House press secretary Karine Jean-Pierre said in a statement after the vote.
“President Biden will never force the middle class and working families to shoulder the burden of tax cuts on the wealthiest, as this bill does. The president has made it clear that this bill has no chance of becoming law.”
On Monday, the Congressional Budget Office also said it saw an increased risk of the government running out of money in early June due to lower-than-expected tax receipts.