Debt ceiling: US may risk debt default 'as early as June 1', Yellen says

President Joe Biden calls congressional leaders to meet on debt limit next week

US Treasury secretary Janet Yellen at the White House in Washington. EPA
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The US could risk a debt default as soon as the start of June, Treasury Secretary Janet Yellen said on Monday.

Her comments come as policymakers tussle over raising the borrowing limit and Republicans push for spending cuts.

Last week, Republicans voted to raise the national borrowing limit with drastic cuts as they sought a showdown with President Joe Biden, a Democrat, over "excessive" spending.

But Mr Biden has refused to agree to spending cuts to get the debt cap increased.

While the US hit its $31.4 trillion borrowing limit in January, the Treasury has taken extraordinary measures that allow it to continue financing the government's activities.

If the debt ceiling is not raised or suspended by Congress before current tools are exhausted, the government risks defaulting on payment obligations, with profound implications for the economy.

"Our best estimate is that we will be unable to continue to satisfy all of the government's obligations by early June, and potentially as early as June 1, if Congress does not raise or suspend the debt limit before that time," said Ms Yellen in a letter addressed to House Speaker Kevin McCarthy and other leaders.

"Given the current projections, it is imperative that Congress act as soon as possible to increase or suspend the debt limit in a way that provides longer-term certainty that the government will continue to make its payments."

The White House shared that Mr Biden had called all four congressional leaders — Mr McCarthy, Democratic House Majority Leader Chuck Schumer, Republican Senate Minority Leader Mitch McConnell and Democratic House Minority Leader Hakeem Jeffries — to set up a meeting on May 9 about the debt limit.

"We do not have the luxury of waiting until June 1 to come together, pass a clean bill to avoid a default and prevent catastrophic consequences for our economy and millions of American families," Mr Schumer and Mr Jeffries said in a joint statement after Ms Yellen's assessment.

Agence France-Presse contributed to this report

Updated: May 02, 2023, 10:44 AM