Yellen updates US default date to June 5 as 'major issues remain' in debt ceiling talks

President Joe Biden 'hopeful' and 'optimistic' over a debt ceiling deal soon

Treasury Secretary Janet Yellen has updated the X Date of a US default to June 5. AP
Powered by automated translation

US Treasury Secretary Janet Yellen on Friday said that the country would default on its debt on June 5, setting the X Date later than expected and giving negotiators more time to reach a deal on the debt ceiling.

“Based on the most recent available data, we now estimate that Treasury will have insufficient resources to satisfy the government’s obligations if Congress has not raised or suspended the debt limit by June 5,” she said in a letter to US House Speaker Kevin McCarthy.

The X Date is the day the US will be unable to fulfil its financial obligations.

The Treasury's cash balance fell to $49.5 billion on Wednesday, according to data released on Thursday – the lowest amount of money the US has had since 2021.

Ms Yellen said that her department would “make more than $130 billion of scheduled payments in the first two days of June”, thus leaving “an extremely low level of resources”.

Shortly afterwards, “our projected resources would be inadequate to satisfy” required payments.

A deal on raising the US debt ceiling could be reached as soon as Friday, but there are still issues between the White House and Republican congressional leadership that put the state of the nation's economy at risk.

"Things are looking good, very optimistic," US President Joe Biden told reporters late on Friday.

"I’m hopeful we’ll know by tonight whether we’re going to be able to have a deal.”

With the threat of a default looming, Mr Biden and Mr McCarthy face the very real possibility of an economic crisis, with the threat of a default on the country's $31.4 trillion debt only days away.

“We know it's crunch time,” Mr McCarthy said.

“We have made progress,” Republican negotiator Garret Graves told reporters.

“I said two days ago, we had we had some progress that was made on some key issues, but I want to be clear, we continue to have major issues that we have not bridged the gap on chief among them work requirements.”

Patrick McHenry, another negotiator for Republicans, said talks could either progress or quickly fall apart.

Speaking to reporters on Friday, Mr McCarthy said “progress” was made during talks on Thursday night and added that spending is still the key issue in negotiations.

Deputy secretary of the Treasury Wally Adeyamo had earlier told CNN that “we're making progress” on a deal.

“The President is committed to making sure that we have good faith negotiations with the Republicans to reach a deal because the alternative is catastrophic for all Americans,” he said.

Mr Adeyamo did not specify the current provisions of a potential deal but reports indicate a cap on federal spending for the next two years, which is expected to affect funding for the Internal Revenue Service and defence.

Members of the House of Representatives left Washington for a 10-day break and are not scheduled to return until June 4.

What is the US debt ceiling?

What is the US debt ceiling?
What is the US debt ceiling?

Republican leadership said members would receive 24 hours' notice to return to the Beltway if a deal was struck.

“The United States of America needs to pay all those bills and pay them on time,” Mr Adeyamo said.

Mr Biden said he proposed a deal that would cut federal spending by $1 trillion. He and Mr McCarthy are roughly $70 billion apart on discretionary spending, Reuters reported.

“There will be no default,” Mr Biden said from the White House on Thursday.

Ms Yellen also said that there were signs of market stress as the brinkmanship over the debt ceiling continues.

The country's “AAA” credit rating was also placed under negative watch by Fitch and could still take a hit even if politicians pass a deal before the June 1 deadline.

A default would have disastrous implications for the US and world economy.

Payments on social programmes would be delayed to American citizens and interest rates would soar.

The US would also plunge into a recession, causing millions of jobs to be lost and tank the stock market, White House economists project.

It would also cast doubt on the strength of the US dollar, which remains the reserve currency of choice for much of the world's foreign reserves.

Kristalina Georgieva, managing director of the International Monetary Fund, said the organisation was keen to see the US debt ceiling stand-off resolved quickly.

“Brinkmanship over the federal debt ceiling could create a further, entirely avoidable systemic risk to both the US and the global economy at a time when there are already visible strains,” the IMF said in a statement.

Even a last-minute deal could have negative consequences, such as in 2011 when the S&P downgraded the US's credit rating.

Moody's analysts have also reported that “any consequences of the debt ceiling impasse” can harm emerging economies.

The IMF argued for a “permanent resolution to this recurring stand-off” by creating institutional change that, once funding is approved, additional borrowing is automatically provided.

Updated: May 26, 2023, 10:56 PM

View from DC

The inside scoop from The National’s Washington bureau

View from DC