WASHINGTON — Treasury Secretary Janet Yellen said Friday that the United States will likely have enough reserves to delay a potential debt default until June 5.
“We now estimate that the Treasury will have insufficient funds to meet the government’s obligations if Congress does not increase or suspend the debt limit by June 5,” Yellen wrote in a letter to House Speaker Kevin McCarthy.
Friday’s new date provided much-needed breathing space for negotiations between the White House and Republicans in Congress, who on Friday appeared to have reached a compromise to raise the two-year debt ceiling.
The last time the so-called “X date” was updated was on May 1, when Yellen told Congress that the United States had enough money available to meet its obligations until “early June, and possibly as early as June 1.” .
Friday’s letter marked the first time since Yellen began sending regular updates to Congress in January that the secretary didn’t reserve the date with a phrase like “already in.”
Instead, Yellen explained that Treasury would make more than “$130 billion in scheduled payments in the first two days of June,” leaving the agency with “an extremely low level of resources.”
“During the week of June 5, the Treasury will make an estimated $92 billion in payments and transfers,” Yellen continued, and “our projected resources would be insufficient to meet all of these obligations.”
Markets closed higher on Friday, buoyed in part by optimism that a deal would be approved by the House and Senate and signed by the president on June 1.
But as talks continued this week with little more than vague claims of “progress” from those involved, it looked increasingly unlikely that a deal would be reached by Friday’s end.
Officials said Friday was widely viewed as the last possible day to reach a deal and still have enough time to pass it into law, pass it to the House and then pass it in the Senate before the previous “X date” of June 1.
Yellen’s new date came amid growing concerns around the world about US creditworthiness.
Credit rating agency Fitch announced on Wednesday that it has set the United States’ triple-A status to ‘rating watch negative’.
On Friday, officials wrote in a preliminary annual assessment of the United States International Monetary Fund that “driving the federal debt ceiling to its peak could pose further, entirely avoidable systemic risk to both the U.S. and the global economy.”
Should the United States technically default, even just for a few days, it could push up interest rates and undermine confidence in the US dollar. Economists note that America’s adversaries, particularly Russia and China, are happily watching the current deadlock over the debt limit, knowing that a blow to confidence in the US dollar would work to their advantage.
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