According to a warning Treasury Secretary Janet Yellen sent to Congress on Monday, the United States could face a debt default as early as June 1.
In a letter to House and Senate leaders, Yellen urged them to act quickly to address the $31.4 trillion (€28.57 trillion) borrowing limit to protect the “full faith and credit of the United States” and avoid a global financial crisis.
“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 credit rating of the United States,” Yellen said in the letter.
The Congressional Budget Office also warned on Monday that there was an increased risk of the US running out of funds in early June due to lower-than-expected tax receipts and increased spending.
The US plans to borrow $726 billion during the April to June quarter of 2023, $449 billion more than projected in January. The US needs to take on the extra debt to pay for programs already approved by Congress.
While Russia’s invasion of Ukraine is a burden on US economic growth, the debt ceiling poses the greatest risk to the US financial position, according to Treasury officials.
The Bipartisan Policy Center, which forecasts the date when the government exhausts its extraordinary measures, told the AP news agency that the government could run short of cash within “mere months or even weeks” if Congress does not act.
The recently revised “X-date,” which considers April tax payments, is mostly consistent with an earlier projection made in January that the government may face a cash shortfall by approximately June 5.
However, Yellen indicated some flexibility by stating that the actual date “could be a number of weeks later than these estimates.”
The federal debt limit has become a point of contention between Democrats, the White House, and House Republicans.
While President Joe Biden is pushing for an increase in the cap without negotiation, as has regularly occurred in the past, House Republicans have passed a bill that includes spending cuts in exchange for a debt limit increase.
The Republican bill seeks to cut spending in various areas, such as health care and tax incentives for solar energy. The bill targets a reduction of $4.5 trillion in spending in return for increasing the US debt limit by $1.5 trillion.
Biden has invited the four Congressional leaders, including Republican House Speaker Kevin McCarthy, to the White House on May 9 to discuss the matter.
However, Democrats and Biden have stated that they will not approve the steep cuts to spending proposed by the House Republicans.
Biden has emphasized that he will not negotiate over the debt ceiling increase but is willing to discuss budget cuts after a new limit is passed.