Yellen ramps up pressure on Congress to pass debt limit deal

WASHINGTON (CN) — A looming debt crisis that would cause serious damage to the U.S. economy and put pressure on taxpayers could be just weeks away if Congress does not act to prevent it, the government’s top financial manager told lawmakers Monday.

Congressional Republicans and the Biden administration have been fiercely at odds for months over the debt ceiling — the government’s self-imposed spending limit that policymakers have regularly increased for decades. Failing to do so could cause the U.S. to default on its loans and bring on an economic crisis.

The White House has so far held firm on its claim that Congress should pass legislation raising the debt ceiling without conditions, but Republicans have used their House majority to approve their own bill that pairs such action with major cuts to federal spending.

A May 9 meeting between President Joe Biden, House Speaker Kevin McCarthy and a group of congressional leaders appeared to yield little progress. McCarthy told reporters Monday that a deal had yet to emerge and sought to pin the blame for a potential default on Democrats.

Now, Treasury Secretary Janet Yellen has informed lawmakers that they are quickly running out of time to sort out a plan for handling the debt limit.

In a letter dated Monday, Yellen forecast that, based on available information, the Treasury Department could run out of money to pay U.S. financial obligations by June. A default could even come as early as June 1, she cautioned. Yellen has made similar predictions before, but this time the Treasury Department has made an estimate based on currently available data. Despite that, the treasury secretary said that the exact date of a default is still in flux as the agency exhausts the extraordinary financial measures it has deployed to prevent a default.

Although the exact timing of a default is not clear, Yellen urged lawmakers not to continue dragging out the deadlock, warning that economic impacts could begin even before the U.S. tumbles over the debt cliff.

“We have learned from past debt limit impasses that waiting until the last minute to suspend or increase the debt limit can cause serious harm to businesses and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States,” Yellen wrote. The ongoing congressional stalemate has already increased borrowing costs for the Treasury Department, she added.

Beyond making her work harder, a full default would have devastating impacts on Americans, Yellen argued. “If Congress fails to increase the debt limit, it would cause severe hardship to American families, harm our global leadership position, and raise questions about our ability to defend our national security interests,” the treasury secretary contended.

Yellen implored lawmakers to act as soon as possible.

The GOP-led House in April passed its austere counteroffer to the White House’s demand for a “clean” debt ceiling increase. The Republican plan, if made law, would raise the debt limit by roughly $1.5 trillion until March 31 of next year while knocking spending down to 2022 levels and limiting debt growth to just 1% annually over the next decade.

In addition to those measures, the bill would also advance a number of GOP policy priorities — provisions that make the legislation ever more unlikely to pass in the Democrat-led Senate. The White House has stated that it would veto the Republican bill, accusing the GOP of holding the U.S. economy hostage in exchange for budget concessions.

The upper chamber is also considering a bill from Democrats that would raise the debt ceiling without conditions, but Senate Republicans have already signaled that they would oppose that measure.

President Biden is scheduled to meet again with congressional leaders on Tuesday.

Follow @BenjaminSWeiss

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