Yellen warns of the risk of a US default in June and urges raising the debt limit

Treasury Secretary Janet Yellen said Friday that the United States is likely to hit the legal debt limit of $31.4 trillion on January 19, forcing the Treasury to launch extraordinary treasury management measures. to try to avoid a default in early June.

“Once the cap is reached, Treasury will have to start taking some extraordinary steps to prevent the United States from defaulting,” Yellen said in a letter to congressional leaders urging lawmakers to act quickly. to raise the debt ceiling.

“Although Treasury is not currently in a position to provide an estimate of how long the extraordinary measures will allow us to continue to service government obligations, it is unlikely that the cash and extraordinary measures will be depleted before early June,” the letter added. .

As of Wednesday, Treasury data showed US federal debt was $78 billion below the limit, with a Treasury operating cash balance of $346.4 billion.

The department reported an $85 billion deficit for December on Thursday as revenue fell and spending rose, particularly from debt interest costs.

Yellen said in her letter to the new Republican Speaker of the House, Kevin McCarthy, that the Treasury plans to suspend new investments this month in two government retiree funds for pensions and health care, as well as reinvestments in the Investment Fund in Government Securities, or Fund G, part of a savings plan for public employees.

“The use of extraordinary measures allows the Government to meet its obligations for only a limited time,” Yellen wrote to McCarthy and other congressional leaders.

“Therefore, it is critical that Congress act in a timely manner to increase or suspend the debt limit. Failure to meet the Government’s obligations would cause irreparable damage to the American economy, the livelihoods of all Americans, and the global financial stability,” Yellen wrote.

Republicans, who now have a slim new majority in the House of Representatives, are poised to demand spending cuts from President Joe Biden’s government, raising fears of a bitter fight over the debt ceiling, which Republicans have threatened to use as leverage.

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