In prepared remarks on Tuesday, Treasury Secretary Janet Yellen will likely declare that the debt limit dispute is already hurting the U.S. economy by raising borrowing prices and debt.
Yellen will remind Washington community bankers of the 2011 “eleventh-hour brinkmanship” over the debt ceiling that led to the first U.S. credit rating drop.
“Time’s up. “Every day Congress does not act, we are experiencing increased economic costs that could slow down the U.S. economy,” Yellen said at an Independent Community Bankers of America event.
“The U.S. economy is at risk. Millions of Americans’ livelihoods do. Time is short. Congress should address the debt limit immediately.”
Yellen warned Congress on Monday that the Treasury expects to be able to pay the government’s bills only through June 1 without a debt limit increase, putting pressure on Republicans and the White House to negotiate a compromise soon.
President Joe Biden will meet with Republican House of Representatives Speaker McCarthy and the three other top legislative leaders on Tuesday at 3 pm EDT (1900 GMT) to discuss avoiding the country’s first default.
Yellen said the 2011 crisis, when legislators lifted the debt limit seconds before the government stopped paying, illustrated the dire consequences of inaction.
She said consumer confidence plunged 20%, the S&P 500 stock index dropped 17%, and mortgage and vehicle loan fees rose.
She said letting the U.S. default would cause an economic and financial disaster, tarnishing the nation’s prestige and damaging its worldwide economic leadership.
She claimed the standoff raised the debt burden and made investors wary about early June government debt.
Yellen noted that many U.S. community banks had higher net income in 2022 than before the pandemic, even though some regional banks were under pressure after Silicon Valley Bank and Signature Bank failed in March.
“Aftershocks” like First Republic Bank’s demise had occurred, but she could not detect “any sign of a shift in the fundamental health of the banking system.”
She said Treasury was attentive and monitoring situations, and the government was ready to take more measures if smaller institutions faced deposit runs that risked contagion.
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