US on Track for June 1 Default without Debt Ceiling Hike, Treasury Says

Reuters

14:54 JST, May 16, 2023

WASHINGTON (Reuters) – The U.S. Treasury Department reiterated Monday it expects to be able to pay the U.S. government’s bills only through June 1 without a debt limit increase, increasing pressure on congressional Republicans and the White House to reach a deal in coming days.

In her second letter to Congress in two weeks, Treasury Secretary Janet Yellen confirmed that the agency will be unlikely to meet all U.S. government payment obligations by early June, triggering the first-ever U.S. default. The debt ceiling could become binding by June 1, she said.

The new date reflects further data on revenues and payments received since Yellen’s told Congress on May 1 that Treasury would likely run out of cash to pay government bills in early June, and potentially as early as June 1. It comes a day before U.S. President Joe Biden is expected to meet House Speaker Kevin McCarthy for talks, and ahead of an overseas trip for the President that starts Wednesday.

The actual date Treasury exhausts extraordinary measures could be a number of days or weeks later than these estimates, Yellen said in today’s letter, a shift from May 1’s letter that warned only of “”a number of weeks later.” She said she will provide an additional update to Congress next week as more information becomes available.

Biden travels to Japan on Wednesday for a Group of Seven leaders summit, then to Australia, a trip that will take about a week. McCarthy said Monday there had been no progress in marathon talks at the staff level throughout the weekend.

Yellen has repeatedly warned that failure by Congress to raise the $31.4 trillion federal debt limit could spark a “constitutional crisis” and would unleash an “economic and financial catastrophe” for the U.S. and global economies.

The non-partisan Congressional Budget Office last week said the United States faces a “significant risk” of defaulting on payment obligations within the first two weeks of June without a debt ceiling hike, with payment operations uncertain throughout May. Some analysts, including the Congressional Budget Office, have suggested that Treasury could last as long as August without a default if it can access June 15 quarterly tax payments and new borrowing measures that become available June 30.

Yellen urged action as soon as possible in Monday’s letter. “We have learned from past debt limit impasses that waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States,” Yellen said. She said Treasury’s borrowing costs had already increased substantially for securities maturing in early June

“If Congress fails to increase the debt limit, it would cause severe hardship to American families, harm our global leadership position, and raise questions about our ability to defend our national security interests,” she said.