Janet Yellen says Treasury could run out of cash reserves by October 18 if debt limit is not raised


Treasury Secretary Janet Yellen told Congress that the Treasury would not be able to pay all government bills if lawmakers did not increase or suspend the federal borrowing limit by October 18.

“At this point, we would expect the treasury to end up with very limited resources that would quickly run out. It is not certain that we can continue to meet all of the nation’s commitments after that date, ”she said in a letter to congressional leaders on Tuesday morning.

Senate Majority Leader Chuck Schumer (D., NY) on Tuesday attempted to push through an increase in the debt ceiling with a simple majority vote, which would have allowed Democrats to raise the ceiling themselves. But Senate Minority Leader Mitch McConnell (R., Ky.) Objected, blocking legislative maneuver and prolonging a high-stakes showdown in the Senate.

“We are simply asking Republicans: walk away,” Mr. Schumer said. “We can fix this problem today.”

Mr McConnell replied that Republicans “will not help Democrats save their time and energy so that they can resume partisan socialism as quickly as possible”, referring to President Biden’s current multibillion dollar program. debated in Congress.

Senate Republicans on Monday blocked a Democratic bill that would have funded the government until December 3, 2021 and suspended the debt limit until December 16, 2022. Democrats are rushing to send legislation to Mr. Biden before current government funding expires at 12:01 am on October 1, one of the many important topics lawmakers are juggling this week.

House Majority Leader Steny Hoyer (D., Md.) Said on Tuesday Democrats hoped to quickly pass a simple debt ceiling extension this week, after Senate blockade legislation binding the debt ceiling. debt to government funding. But he also indicated that raising the debt ceiling through a different tactic tied to the budget process known as reconciliation was an option Democratic leaders had previously ruled out.

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Ms Yellen’s letter makes it clear that lawmakers have a narrow window to approve an increase or suspension of the debt limit before the Treasury begins to miss payments on its bonds, triggering a default that could bring down the steps.

The Treasury has used emergency measures to conserve liquidity since August 1, when the debt ceiling was reinstated after a two-year suspension. Ms Yellen has warned lawmakers for months that the government could exhaust these measures this fall, and said earlier this month the date could come as early as October. Tuesday’s letter is the first time she has provided a specific estimate for the so-called X-date.

The United States faces about $ 20 billion in social security payments on October 20, as well as about $ 6 billion in individual tax refunds, according to forecasts from the Bipartisan Policy Center. It faces $ 49 billion in additional payments until October 29, and then $ 80 billion in additional payments on November 1, including $ 14 billion in interest on the federal debt.

Ms Yellen reiterated a call for lawmakers to agree to raise the debt ceiling, which does not approve the new spending but instead allows the government to pay the bills it has already agreed to incur, in her testimony Tuesday before the Senate Banking Committee, where she appeared alongside Federal Reserve Chairman Jerome Powell.

Fed Chairman Jerome Powell said the surge in inflation this year has been bigger and longer than expected.


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Ms Yellen said the United States “would likely face a financial crisis and economic recession” if the Treasury cannot repay bondholders as the debts fall due. “It is imperative that Congress quickly address the debt limit. If not, America would default for the first time in history, ”she said.

Senate Republicans opposed increasing the debt ceiling, saying Democrats, as the ruling party, should raise the ceiling themselves. Democrats stressed that raising the debt ceiling is a shared responsibility of both parties, and said votes to raise the debt ceiling under the Republican Trump administration were bipartisan.

Yields on 10-year Treasuries jumped Tuesday morning to 1.545%, their highest level in three months.

The deadlock on the debt limit is already spilling over into short-term money markets, as investors demand more yield to hold treasury bills with the greatest risk of late payments. Usually, investors demand higher yields on Treasuries with longer maturities to offset the risk that the Fed may raise interest rates or that inflation accelerates, reducing the value of those bonds.

But in recent weeks, short-term Treasuries maturing mid-October to mid-November have offered higher yields than those maturing a few months later, a sign of how some investors are avoiding certain securities for the sake of it. guard against a possible defect.

At Tuesday’s hearing, Powell urged lawmakers to raise the debt ceiling without delay. He said a crisis management manual developed by Fed officials during a similar stalemate in 2013, which some analysts said could guide the central bank’s response this fall if the federal government cannot paying all its bills, shouldn’t lead lawmakers to conclude the The Fed could fully compensate for a financial disaster.

The Fed did not make these preparations public because it did not want to create a “public misunderstanding that we could actually protect the financial markets, the economy and the American people from the consequences of a default,” a- he declared. said Tuesday.

Separately, Ms. Yellen said the US economy was in the midst of a “fragile but rapid recovery” from the recession caused by the coronavirus pandemic in March 2020. Ms. Yellen said despite a recent slowdown in hiring and of consumer spending due to the Delta. variant of the coronavirus, she said she still expects the labor market to return to full employment next year.

As federal debt and budget deficits rise in Washington, it’s unclear whether Democrats and Republicans are concerned. Gerald F. Seib of the WSJ examines each side’s position on the issue. Photographic illustration: Todd Johnson

Policymakers faced an unexpected surge in inflation much larger than expected this year, complicating the outlook for interest rates for years to come. The Fed indicated last week that it would likely start reversing its pandemic stimulus policies at its next meeting on November 2-3, gradually reducing its $ 120 billion per month purchases of US securities. ‘State and Mortgage Bonds.

Mr Powell said during Tuesday’s hearing that the surge in inflation this year, largely due to supply chain bottlenecks and other challenges associated with reopening the economy, was larger and more sustainable than expected. Inflation has jumped to over 4% in recent months, using the Fed’s preferred gauge, but Mr Powell said he believed prices would eventually revert to the central bank’s 2% target. .

When asked if inflation was wider and more structural than at the start of the year, Mr Powell said: “I think it’s fair to say that it is. The supply chain bottlenecks that drove prices up “haven’t just gotten better, they’ve actually gotten worse,” he said. Mr Powell pointed to semiconductor chip shortages that have hampered production of new cars and a growing backlog of container ships “with anchors outside Los Angeles.”

Write to Nick Timiraos at [email protected] and Kate Davidson at [email protected]

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