Treasury Secretary Janet Yellen told Congress on Friday that the U.S. could default on its debt obligations by June 5 — four days later than previously estimated — if lawmakers do not act in time to raise the federal debt ceiling.
Yellen’s letter comes as Congress breaks for the three-day Memorial Day weekend, and as tensions build over whether a deal between the White House and Republicans in Congress will be struck in time.
The so-called “X-date” arrives when the government no longer has enough of a financial cushion to pay all of its bills, having exhausted the extraordinary measures it has been employing since January to stretch existing funds.
Yellen said in her letter that the agency used one measure for the first time since 2015 to get the U.S. financial position to this point: a swap of roughly US$2 billion in Treasury securities between the Civil Service Retirement and Disability Fund and the Federal Financing Bank.
“The extremely low level of remaining resources demands that I exhaust all available extraordinary measures to avoid being unable to meet all of the government’s commitments,” she said in her letter.
Lael Brainard, director of the National Economic Council, said “negotiators have made progress toward a reasonable, bipartisan budget agreement in recent days, and the Secretary’s letter underscores the urgent need for Congress to act swiftly to prevent default.”
“We have already seen Treasury’s borrowing costs increase substantially for securities maturing in early June,” Yellen said.
“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.
The latest projection is in line with her previous estimates that the U.S. could exhaust all extraordinary measures in early June and as soon as June 1, but the latest deadline affords lawmakers and the White House more time to strike a deal.
Alec Phillips, chief political economist at Goldman Sachs Research, said while the projected X-date is not surprising — as the investment bank projected that it would fall in the week of June 5 — the timing of the letter’s release was surprising “given the state of negotiations.”
“We were a little surprised that it came out today instead of waiting until after the weekend,” Phillips said. “I think the legislative timeline dictated that they needed a deal by tomorrow, more or less, and this essentially adds four days to the timeline.”
“Hopefully that can get a deal this weekend,” Phillips said.
Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget, said the new letter “shouldn’t mean anything other than we need to get this deal signed into law.”
“Whether it’s June 1 or June 5, we have waited far too long already,” she said.
“This could rattle markets. The point about the X-date is that we don’t know when it is until we hit it and we should be trying to find out.”