Treasury Secretary Janet Yellen Says US May Avoid Debt Default Until June 5

Treasury Secretary Janet Yellen Says US May Avoid Debt Default Until June 5

On Friday, Treasury Secretary Janet Yellen said that the United States may have enough reserves to delay a potential debt default until June 5. In a letter to House Speaker Kevin McCarthy, Yellen stated that the Treasury would have insufficient resources to meet the government’s obligations if Congress does not raise or suspend the debt limit by June 5. The new date gives lawmakers more time to negotiate a compromise agreement to increase the debt ceiling for two years.

The last time the “X date” was updated was on May 1, when Yellen informed Congress that the United States had enough cash available to meet its obligations until “early June, and potentially as early as June 1.” Friday’s letter was the first time Yellen did not qualify the date with a phrase like “as early as.” Instead, she explained that Treasury would make more than “$130 billion of scheduled payments in the first two days of June,” leaving the agency with “an extremely low level of resources.”

Concerns About US Credit Rating

The International Monetary Fund (IMF) and Fitch credit rating agency have voiced their concerns about the US credit rating. On Wednesday, Fitch announced that it had placed the United States’ triple-A status on “rating watch negative.” On Friday, in a preliminary annual assessment of the United States, IMF officials wrote that “brinkmanship over the federal debt ceiling could create a further, entirely avoidable systemic risk to both the U.S. and the global economy.”

If the United States were to technically default, even for a few days, it could increase interest rates and undermine confidence in the US dollar. Economists note that America’s adversaries, particularly Russia and China, are watching the current debt limit standoff with delight, secure in the knowledge that an erosion of trust in the US dollar would accrue to their benefit.

During the week of June 5, Treasury is scheduled to make an estimated $92 billion of payments and transfers, and “our projected resources would be inadequate to satisfy all of these obligations,” Yellen wrote. To emphasize how low Treasury’s reserves had fallen, Yellen said the agency had to transfer $2 billion from a civil service retirement fund to the Federal Financing Bank, the government’s main borrowing institution.

The markets closed higher on Friday, buoyed in part by optimism that a deal would be passed by the House and Senate and signed by the president by June 1. However, as talks dragged on this week with little more than vague claims of “progress” by those involved, optimism faded that a deal would be reached by the end of Friday. Officials said Friday was widely seen as the last possible day to reach a deal and still have enough time to craft it into legislation, pass it in the House, and then pass it in the Senate before the previous “X-date” of June 1.

Politics

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