President Joe Biden invited Congress’ top four leaders in both parties to a May 9 meeting after the Treasury Department delivered a stark Monday warning: The nation could hit its existing debt ceiling as soon as June 1.
Biden called Hill leaders after Treasury Secretary Janet Yellen told lawmakers that the U.S. could default on its $31.4 trillion in debt in as little as 30 days. Yellen’s stunning forecast piled new pressure on Hill leaders and the White House to strike a bipartisan fiscal deal as cross-party talks remain deadlocked.
Federal cash flow is “inherently variable,” the secretary noted in her Monday letter, so the nation’s debt default date could still come “a number of weeks later” than that worst-case prediction.
While Yellen’s warning was delivered after markets closed on Wall Street, the prediction landed hard on the Hill, where lawmakers hoped they’d have months to maneuver past the current impasse between Biden and Speaker Kevin McCarthy. Now, they could have only a few weeks before a potential economic catastrophe.
Biden invited McCarthy, House Minority Leader Hakeem Jeffries (D-N.Y.), Senate Majority Leader Chuck Schumer (D-N.Y.) and Senate Minority Leader Mitch McConnell (R-Ky.) to a May 9 meeting at the White House to discuss the debt ceiling, according to two people familiar with the matter. The president’s calls were first reported by the Washington Post.
“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,” Yellen said, noting that it is impossible to predict the exact date the nation could default.
Cash from tax season has come in substantially lower than expected, prompting the Treasury Department’s warning that the U.S. could be at risk of default far sooner than forecasters had originally warned — with Congress’ nonpartisan budget office saying earlier this year that the country could hit the debt ceiling as late as September. Now the Congressional Budget Office is echoing Yellen’s appraisal, also warning Monday that “there is a significantly greater risk” of running out of borrowing ability in early June.
On Capitol Hill, rather than negotiating a debt-limit increase both chambers can clear before the deadline, the two parties are at loggerheads. House Republicans narrowly passed their proposal to make substantial cuts to government spending in exchange for staving off default last week, calling on Biden to meet them back at the negotiating table. But it’s been crickets from the White House so far.
That GOP package — which would lift the borrowing cap by $1.5 trillion or until the end of March 2024, whichever comes first, and slash $130 billion in government funding next fiscal year — represents a major victory for Republican leaders hoping to gain leverage in stalled talks with the president. GOP leaders say the onus is now on Democrats to start negotiating in earnest or come back with their own legislative response.
Democratic leaders remain unmoved, insisting that Republicans hike the debt limit with no strings attached, as they have done in the past. Instead, they’re insisting on a separate spending discussion as part of the annual government funding process. The latest X-date estimate, however, could inflate the number of Democrats anxious for the president to accept a second sitdown with McCarthy this year.
There’s some hope for a later deadline, however: If the Treasury Department can scrape by until mid-June, a gush of revenue from quarterly tax receipts is likely to help buoy the nation’s borrowing power for several more weeks, along with an accounting maneuver the department is allowed to execute at the end of June.
To give the U.S. extra borrowing power before then, Yellen is taking another unexpected action. The Treasury Department will stop helping state and local governments shift their own debt to fall in line with tax rules, the secretary told lawmakers on Monday.
Yellen noted that the move “is not without costs, as it will deprive state and local governments of an important tool to manage their finances.”
Even before the secretary’s latest warning, the partisan standoff had begun to worry Wall Street traders and executives. They’ve laid out concerns about the likelihood of default in notes to investors but remain wary of pleading more directly to Congress for action to head off a default — one expected to devastate the global economy.
Independent forecasters expect to issue their own updated debt-limit forecasts by mid-May. Those analyses from the Congressional Budget Office and the Bipartisan Policy Center typically offer more detail than the timeframe the Treasury Department publicly releases.
CBO previously estimated that the federal government will run out of borrowing power between July and September, a range that would have given lawmakers far more breathing room.
