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WASHINGTON − The U.S. has an extra four days to avoid defaulting on its debt.
Treasury Secretary Janet Yellen Friday provided an updated timeline for when the government could run out of money, saying her projection is now by June 5 based on the most recent data if Congress does not raise or suspend the debt ceiling.
Yellen had previously said the U.S. is on track to default in early June and “as early as June 1,” which had White House and Republican negotiators targeting the first of the month for a deal.
The more precise projection, outlined in a letter to House Speaker Kevin McCarthy, gives President Joe Biden and McCarthy additional time to strike a deal to raise the debt ceiling and avert a default as they head into Memorial Day weekend.
The two sides are nearing a new deal to raise the debt ceiling through 2024 and fulfill Republican demands for spending cuts but they still have disagreements on expanded work requirements for welfare programs and expedited permitting for oil and gas projects.
Yellen said the Treasury is set to make more than $130 billion of scheduled payments in the first two days of June including payments to veterans and Social Security and Medicare recipients, leaving the department with “an extremely low level of resources.”
She said the government’s balance would be inadequate to satisfy an estimated $92 billion of payments and transfers, including a scheduled investment in the Social Security and Medicare trust funds of about $36 billion.
As a result of the debt-ceiling standoff, Yellen said the Treasury has already seen borrowing costs increase substantially for securities maturing in early June.
The rating agency Fitch on Wednesday put the country’s “AAA” credit rating on a negative watch ahead of possible inaction by Congress to raise the debt ceiling.
Yellen urged Congress to take action, saying a default would “cause severe hardship to American families, harm our global leadership position, and raise questions about our ability to defend our national security interests.”
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Biden, McCarthy closer to a deal but still not there
White House negotiators and House Republicans have neared zeroed in on a potential deal to cap annual discretionary spending for the next two years, effectively keeping spending levels flat for many domestic programs. McCarthy has said Republicans want the next fiscal year’s budget to be smaller than last year’s budget.
In another concession to Republicans, a deal in the works would roll back $10 billion of $80 billion in IRS funding approved in Biden’s Inflation Reduction Act last year that was designed to crack down on wealthy Americans and corporations that evade taxes.
Even with the additional four days, any deal faces a complicated path for passage. Members of Congress are set to return from the long Memorial Day weekend on Tuesday. McCarthy has also told Republicans he will follow a rule giving members 72 hours to read a bill before holding a vote.
It’s unclear whether a deal will have the votes in Congress for passage even if it has the backing of Biden and McCarthy.
Rep. Patrick McHenry, R-N.C., a top Republican negotiator, said the June 5 potential default date “puts additional pressure on us” and “maintains and ensures” the urgency of reaching an agreement.
“The deal is within reach, it just has to be agreed to, and we’re waiting for the White House to understand the current set of terms we’re dealing with,” McHenry said.
Yellen warned of June 5 date in January letter to McCarthy
This isn’t the first time Yellen has referenced a June 5 date.
The Treasury secretary sent a letter to McCarthy, R-Calif., earlier this year warning that a “debt issuance suspension period” could last through June 5 before the Treasury exceeds the debt limit.
The Treasury Department in January announced it would start taking “extraordinary measures” to prevent the country from defaulting on its debt obligations after the federal government hit its borrowing limit of $31.8 trillion.
“The period of time that extraordinary measures may last is subject to considerable uncertainty due to a variety of factors, including the challenges of forecasting the payments and receipts of the U.S. government months into the future,” Yellen wrote in January.
More:U.S. Treasury Department to take ‘extraordinary measures’ as government nears debt ceiling
Reach Joey Garrison on Twitter @joeygarrison.
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