Janet Yellen warns treasury may hit debt limit in October
US treasury secretary says in letter cash and special measures could be exhausted within weeks
US treasury secretary Janet Yellen warned on Wednesday that the department will probably exhaust its ability to avoid breaching the federal debt limit sometime in October, sending a message to congressional leaders as she prepares to step up talks with legislators on boosting or suspending the ceiling.
“Based on our best and most recent information, the most likely outcome is that cash and extraordinary measures will be exhausted during the month of October,” Yellen said in the letter to Congress Wednesday. “We will continue to update Congress as more information becomes available.”
Senate majority leader Charles Schumer and House speaker Nancy Pelosi said separately on Wednesday that there were multiple options to resolve the debt-limit question, without specifying them for now.
Yellen aims to ramp up her engagement with members of Congress as more legislators return to Washington from their summer recess, according to a treasury official, speaking on condition of anonymity as the plans are not yet public.
The October deadline for action is slightly later than the earliest possible date previously indicated by the treasury. Yellen said in July that there were scenarios in which the treasury could exhaust its special measures and run out of cash “soon after Congress returns from recess” in September.
Estimating the end point for averting a potential payments default has been more challenging this year due to hard-to-predict spending and revenue flows linked to the pandemic, the treasury says.
Yields on 10-year US treasuries were little changed following the release of Yellen’s letter. Financial markets so far have shown limited concern about a payments default.
Democratic legislators have been expected to attach a measure addressing the debt limit to a stopgap spending bill that will be needed to ensure the federal government stays funded past the start of the fiscal year on October 1. But congressional leaders indicated on Wednesday other options were also on the table.
“We have a number of different ways we are looking to get the debt ceiling done,” Schumer, of New York, said on Wednesday in a telephone press conference. “We must get it done. Stay tuned.”
Pelosi similarly said at a separate briefing, “We’ll have several options, we’ll make them well known to you as we narrow them.” She said of raising the debt ceiling, “It has to happen.”
Almost all Republican senators have pledged to vote against lifting or suspending the limit, tying that position to their antipathy towards Democrats’ moves to enact a $3.5-trillion package of social spending. Ten GOP senators would need to back boosting the debt ceiling for it to pass that chamber under so-called regular order.
The office of Senate minority leader Mitch McConnell of Kentucky offered no comment on Yellen’s letter, and referred to McConnell’s earlier remarks that Democrats need to come up with the votes to raise the ceiling on their own.
Democrats have highlighted that they joined with Republicans in suspending the debt limit when former president Donald Trump was in office, and demanded a similar move by GOP legislators now.
“I again note that Congress has addressed the debt limit in recent years through regular order, with broad bipartisan support,” Yellen said in her letter to congressional leaders on Wednesday.
Yellen also warned Congress against waiting until the department is on the verge of a payments default before addressing the debt ceiling.
“We have learnt 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 US, Yellen said.
A decade ago, just getting close to a historic debt default rattled financial markets, resulting in the first-ever credit downgrade of federal debt and tanking stocks, consumer confidence and approval ratings for both then-president Barack Obama and Congress.
The federal debt limit came back into effect — at a level of $28.4-trillion — at the beginning of August following a two-year suspension. The Treasury since then has deployed extraordinary accounting moves to allow the government to keep paying its bills.
Bloomberg News. More stories like this are available on bloomberg.com
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