The US Treasury has warned Congress that the country is projected to reach its statutory debt limit next week, setting up what is sure to be the first major battle in the Republican-controlled House of Representatives over a potential default.
In a letter to congressional leaders, Treasury Secretary Janet Yellen said the department would take “certain extraordinary measures” to prevent the US from defaulting once the debt limit is reached.
The debt limit is the total funds the US is able to borrow to meet its legal obligations. The US has never defaulted on its debt.
If the debt limit is reached on January 19, then the Treasury will repurpose federal funds to extend the timeline in which Congress could raise the limit. The statutory debt limit currently stands at $31.4 trillion.
Ms Yellen said it was unclear how long these measures could last, but “it is unlikely” they will be exhausted before early June.
“I respectfully urge Congress to act promptly to protect the full faith and credit of the United States,” she wrote.
“Failure to meet the government’s obligations would cause irreparable harm to the US economy, the livelihoods of all Americans and global financial stability.”
Raising the debt ceiling is likely to be the first major battle for House Speaker Kevin McCarthy, whose candidacy for the position was nearly derailed because of fighting within his own Republican Party.
One of the most significant demands from the Republican holdouts who stalled Mr McCarthy's speakership was negotiating the debt ceiling to impose cuts in the federal budget, which undoubtedly will face opposition in the Democrat-controlled Senate.
Senate Majority Leader Chuck Schumer said Democrats would not entertain Republican hopes of rolling back domestic funding.
“Republicans can’t say they want to help middle class Americans while simultaneously attacking the bedrock programmes that families rely on,” he wrote in a letter to colleagues on Friday.
White House Press Secretary Karine Jean-Pierre said the debt limit should be addressed in a bipartisan manner.
“And it should be done without conditions. That is important here,” she added.
Mr McCarthy said he hopes to sit down with President Joe Biden soon to address the debt ceiling.