US Treasury Secretary Janet Yellen said the government could run out of money to pay all its bills on June 5, giving Joe Biden’s administration and lawmakers a few more days of flexibility to avoid an unprecedented debt tranche.
Yellen’s new assessment, released late Friday afternoon, comes as the White House and House Republicans rush to hammer out a deal on government spending that would pave the way for raising the U.S. debt ceiling and removing a huge cloud of uncertainty hanging over the nation’s economy.
Before leaving Camp David on Friday evening, Biden told reporters he was optimistic about the possibility of an immediate agreement. “I hope we know by tonight whether we can do a deal,” he said. However, as of Saturday morning, a deal was still elusive.
Yellen had previously warned that a default could occur as early as June 1. The latest update means there is a little extra breathing room for the final details of the deal to be worked out.
“Based on the most recently available data, we estimate that if Congress does not raise or suspend the debt ceiling by June 5, the Treasury will not have sufficient resources to meet the government’s obligations,” Yellen wrote in a letter to House Republican Kevin McCarthy. Speaker.
In the letter, Yellen said the Treasury could make $130bn in pension and government health-related payments over the first two days of June, but these would “leave the Treasury with very limited resources”. By the week of June 5, he added, “the Treasury’s projected resources will not be sufficient to meet its obligations.”
Negotiators for President Joe Biden and McCarthy met through the night Friday, moving closer to a deal that would increase the borrowing limit for two years after the 2024 general election and set limits on spending growth over the same period.
But they say they are in the final stages of negotiations, and although they have exchanged versions of the legislative text, there is still no certainty that a compromise can be reached. “Every time there’s more progress, the issues become more difficult and more challenging,” Patrick McHenry, chairman of the House Financial Services Committee and one of the House Republicans’ lead negotiators, told reporters. “At some point this thing might come together — or go the other way.”
He added that it could still take “a day or two or three” to reach an agreement.
McCarthy was in high spirits when he arrived at the Capitol in the morning.
“We’re going to work as hard as we can to get this done, get the most progress today and finish the journey. I am a complete believer,” he said. “It really comes down to one thing: It’s about spending. Democrats never want to stop the level of spending.
Earlier in a CNN interview, Wally Adeyemo, the deputy treasury secretary, suggested a deal was in hand: “What I can say is we’re making progress and our goal is to make sure we get a deal because default is unacceptable.”
He added, “The President said, the Speaker also said. Also, we have to get something done by the beginning of June, when the secretary says we won’t have the resources to pay our bills.
IMF Managing Director Kristalina Georgieva warned on Friday that if no deal was reached, the US would be entering “unchartered territory” and would have to “reduce” spending.
Missing the deadline would undermine confidence in treasury markets and risk “pulling the anchor” that provides stability to the global financial system, Georgieva said.
“We’ve all read fairy tales Cinderella – Cinderella must leave the ball at exactly midnight,” he said. “We are at this stage. So before our cart turns into a pumpkin, can you please sort this out?”
Once a deal is reached, it could take several days for approval by the Republican-controlled House of Representatives and the Democratic-controlled Senate before any legislation can be signed into law by Biden.
A vote in the closely divided House will be especially tricky, as rank-and-file Republican and Democratic lawmakers have expressed growing displeasure with the deal.
In addition to setting spending limits for the next two years, the possible compromise includes new work requirements for some Social Security programs, laws to speed up approvals for big investments and a small financial boost for the Internal Revenue Service to audit the wealthy. Tax payers.
A deal, if successfully enacted, would remove a major risk to the U.S. economy and financial markets, which are struggling with turmoil in the banking sector and the impact of higher interest rates to curb inflation.
Negotiations to resolve the financial crisis have only reached a high point in recent weeks, forcing Biden to cut short a trip to Asia to pursue direct talks in Washington. Although a deal is nearing, there is still no certainty that it will be reached by the end of Friday, meaning negotiations could be spread over the Memorial Day long weekend in the United States.
U.S. stocks rose, with the S&P 500 up 1.3 percent after reports of progress in debt ceiling negotiations. Treasury yields rose, mostly due to stronger-than-expected economic data released in the morning.
Additional reporting by Peter Wells in New York
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