US Treasury Secretary Janet Yellen said the government could run out of money to pay all its bills on June 5, giving lawmakers a few more days of flexibility to reach a deal that would avoid an unprecedented debt default.
Yellen’s new estimate, released Friday afternoon, came as the White House and Republicans scrambled to finalize a government spending agreement that would pave the way for raising the US borrowing limit and removing a huge cloud of uncertainty hanging over the country’s economy.
Yellen had previously warned that a default could occur as early as June 1. The latest update means that there is more breathing room until the final details of the agreement are worked out.
“Based on the latest available data, we now estimate that the Treasury will not have sufficient resources to meet government obligations if Congress does not raise or suspend the debt limit by June 5th,” Yellen wrote in a letter to Kevin McCarthy, the House Republican. Loudspeaker.
In the letter, Yellen said the Treasury would be able to make $130 billion in payments related to state pensions and health care for seniors in the first two days of June, but that these would “leave the Treasury with a very low level of resources.” It added that by the week of June 5, “the expected Treasury resources will not be sufficient to meet” its obligations.
Negotiators for President Joe Biden and McCarthy met again on Friday, after closing in on a deal that would increase the borrowing limit for two years, beyond the 2024 general election, while also setting caps that would limit spending growth over the same period.
Biden told reporters he was optimistic a deal could be reached. “I hope we will know by tonight if we will be able to do a deal,” he said.
But there was still no certainty that a compromise could be reached. “Every time there’s more progress, the issues that remain become more difficult and more challenging,” Patrick McHenry, chairman of the House Financial Services Committee and one of the House’s top Republican negotiators, told reporters. “At some point this thing could come together — or go in the opposite direction.”
He added that it may take “one, two or three days” for an agreement to be reached.
McCarthy struck a more optimistic tone as he arrived at the Capitol earlier in the morning.
“I’m going to work as hard as I can to try to make it happen and make more progress today and finish the journey. I’m quite hopeful.” It’s really about one thing: This was about spending. The Democrats have never wanted to stop the amount of spending.”
In an interview with CNN earlier, Wali Ademo, the deputy secretary of the Treasury, suggested that a deal is at 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 it, and the Speaker said it. And we have to get something done before early June when the Secretary said it’s very likely we won’t have the resources anymore to pay our bills.”
International Monetary Fund Managing Director Kristalina Georgieva warned on Friday that if no deal is reached, the US will enter “uncharted territory” and face having to “cut back” in spending.
Georgieva said a breach of the deadline would affect confidence in treasury markets and risk “pulling the anchor” to provide stability to the global financial system.
We’ve all read the fairy tale about it Cinderella “Cinderella had to leave the ball at exactly midnight,” she said. “And we’re at this point. So before our wagon turns into a pumpkin, can we sort this out please? “
Once an agreement is reached, it could take several days for any legislation to be approved by the Republican-controlled House of Representatives and the Democratic-controlled Senate, before Biden enacts it into law.
The vote in the closely divided House of Representatives will be particularly difficult because both Republican and rank-and-file lawmakers have expressed unhappiness with the emerging deal.
In addition to setting a spending cap for the next two years, the potential settlement also likely includes new business requirements for some social safety net programs, legislation to speed up allowing large investments and an increase in smaller funding for the Internal Revenue Service to vet the wealthy. taxpayers.
The agreement, if successfully activated, would remove a major source of risk for the US economy and financial markets, which are grappling with turmoil in the banking sector and the impact of high interest rates to tame inflation.
Negotiations to resolve the financial crisis have only come into high gear in recent weeks, forcing Biden to cut short a trip to Asia in order to follow talks directly in Washington. Although a deal is close, it remains uncertain that it can be finalized by the end of Friday, which means talks could extend into the Memorial Day long weekend in the US.
In the wake of reports of progress in debt ceiling talks, US stocks rose, with the S&P 500 closing up 1.3 percent. Treasury yields rose, mostly in response to stronger-than-expected economic data released in the morning.
Additional reporting by Peter Wells in New York