In a letter to congressional leaders on Monday, Treasury Secretary Janet Yellen warned that the US government could run out of money by June 1, as President Joe Biden invited Republican House Speaker Kevin McCarthy to the White House next week amid growing concerns that Washington is headed toward a debt ceiling crisis.
“After reviewing recent federal tax receipts, our best estimate is that we will be unable to continue to satisfy all of the government’s obligations by early June, and potentially as early as June 1, if Congress does not raise or suspend the debt limit,” Yellen wrote.
She said the Treasury forecast was based on the latest tax revenue data. Still, it was “impossible to predict with certainty the exact date when Treasury will be unable to pay the government’s bills.”
Washington’s debt ceiling debates are perennial. But a protracted standoff between the Biden administration and Capitol Hill Republicans has raised fears of a historic default.
The White House confirmed that Biden had invited McCarthy to a May 9 meeting with House Democratic minority leader Hakeem Jeffries, Senate Democratic majority leader Chuck Schumer, and Senate Republican minority leader Mitch McConnell.
The White House has previously demanded that Republicans increase the debt ceiling without conditions and refuse to negotiate.
After House Republicans passed a debt ceiling bill last week, Biden is under pressure to negotiate.
The Democrat-controlled Senate will reject the plan, incorporating Republican policy demands and budget cutbacks. But more business leaders and Biden’s party members are urging him to use the bill as a negotiation starting point.
Last Thursday, West Virginia Democratic senator Joe Manchin stated the “American people will pay the economic price if President Biden continues to refuse to sit down and negotiate a commonsense compromise that would prevent a historic default.”
Last week, three Democratic House members—Jared Golden, Marie Gluesenkamp Perez, and Mary Sattler Peltola—signed a letter urging Biden and McCarthy to “engage in genuine talks offering real proposals that will result in an agreement to lift the debt limit.”
“Come together to find a solution that can pass the House and Senate,” said Business Roundtable CEO Joshua Bolten.
It was uncertain if Democratic leaders would negotiate to lift the borrowing ceiling. However, Schumer’s office stated the May 9 meeting would “discuss passing a clean bill to avert a default.”
Yellen cautioned that a default threat might shake markets and the US economy. The last time legislators faced a “fiscal cliff” in 2011, S&P cut the US’s triple-A credit rating.
“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 US credit rating,” Yellen wrote.
PGIM CEO David Hunt told the Milken Institute’s annual conference in Los Angeles on Monday that the $1.2tn asset manager was spending more time dealing with customers on debt ceiling alternatives than recession threats. “I just think that the market at this point doesn’t handle these types of situations well,” he said of the “low tail” danger.
JPMorgan analysts said Treasury’s forecasts are “more conservative” than most private forecasters as a “negotiating tactic to force Congress to find lasting resolution well before a protracted debate could impact financial markets.”
On Monday, the Congressional Budget Office supported the Treasury assessment, which experts said implies a “significant risk” of an early deadline.
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