Treasury Secretary Janet Yellen cautioned that the US Treasury may default if Congress fails to raise or suspend its statutory borrowing authorization by June 1. Yellen wrote to House and Senate leaders to rapidly raise the $31.4tn US legal borrowing limit. Yellen said it’s impossible to estimate the US’s cash shortage date. Due to less tax receipts and faster IRS processing, Congressional Budget Office Director Phillip L. Swagel warned Monday that the US could run out of funds in early June.
In response, Yellen urged lawmakers to take immediate action to protect the US’s credit rating. Yellen added that the United States’ credit rating would suffer if the debt ceiling wasn’t raised or suspended in a timely manner. Consequently, this would hurt businesses and consumers alike. According to the US Treasury, plans to increase borrowing during the April-June quarter of this year will go ahead, even as the federal government is close to breaching its debt limit.
Experts agree that the fight over raising the debt ceiling poses the greatest threat to the economy. Even if Congress raises the debt ceiling before a default, Eric Van Nostrand, Acting Assistant Secretary for economy policy, says uncertainty might harm the labor market and the US’s international reputation. Director of Economic Policy at the Bipartisan Policy Center Shai Akabas has therefore requested an immediate increase in the debt ceiling from the U.S. Congress. Warning that “the US government is again within months or even weeks of failing to make good on all its obligations,” Akabas said the US could default in the coming months or weeks.
The White House and Democrats have pushed Congress to increase the debt limit. However, House Republicans recently passed a package to cut spending in exchange for a debt limit increase, which President Joe Biden wants to negotiate. Yellen has said repeatedly, most recently this week, that Congress should raise or suspend the debt limit immediately and without conditions.
