The US government risks running out of money as soon as June 1, Treasury secretary Janet Yellen warned in a letter to congressional leaders on Monday, as US President Joe Biden invited Republican Speaker of the House Kevin McCarthy to the White House next week amid growing concerns that Washington is careening towards a debt ceiling crisis.
“After reviewing recent federal tax receipts, our best estimate is that we will be unable to continue to satisfy all of the government’s obligations by early June, and potentially as early as June 1, if Congress does not raise or suspend the debt limit before that time,” Yellen wrote.
She said that the Treasury estimate was based on the latest available data on tax receipts, although it was “impossible to predict with certainty the exact date when Treasury will be unable to pay the government’s bills”.
Debates over raising the debt ceiling — the legal limit on federal borrowing — have become a perennial issue in Washington. But a protracted stand-off between the Biden administration and Republicans on Capitol Hill has raised fears that the government is heading towards an unprecedented default.
Shortly after the Treasury published Yellen’s letter, the White House confirmed Biden had called McCarthy to invite him to a meeting at the White House on May 9 with fellow congressional leaders Hakeem Jeffries, the Democratic House minority leader; Senate Democratic majority leader Chuck Schumer; and Senate Republican minority leader Mitch McConnell.
The invitation marked an apparent shift in strategy for the White House, which has demanded that Republicans lift the debt ceiling without condition and previously insisted that the matter is not up for negotiation.
Biden has come under mounting pressure to sit down at the negotiating table after House Republicans last week passed a bill that would raise the debt ceiling and delay the risk of default until at least next year.
The bill, which also includes a laundry list of Republican policy priorities and spending cuts, is destined to fail in the Democrat-controlled Senate. But a growing number of business leaders and members of Biden’s own party have called on him to use the bill as a starting point for negotiations with the other side.
Joe Manchin, the Democratic senator from West Virginia, said in a statement last week that the “American people will pay the economic price if President Biden continues to refuse to sit down and negotiate a commonsense compromise that would prevent a historic default”.
Three Democratic House members — Jared Golden, Marie Gluesenkamp Perez and Mary Sattler Peltola — cosigned a letter last week calling on Biden and McCarthy to “engage in genuine talks offering real proposals that will result in an agreement to lift the debt limit”.
Joshua Bolten, chief executive of Business Roundtable, the lobby group for bosses from some of America’s biggest companies, also called on the two sides to “come together to find a solution that can pass the House and Senate”.
It remained unclear, however, whether Democratic leaders were open to negotiations on raising the borrowing limit. A spokesperson for Schumer said the May 9 meeting would be to “discuss passing a clean bill to avert a default”.
Yellen warned that even the threat of default could rattle markets and send shockwaves throughout the US economy. The last time lawmakers approached a “fiscal cliff” in 2011, S&P downgraded the US’s triple-A credit rating.
“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 business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States,” Yellen wrote.
Earlier on Monday, David Hunt, chief executive of PGIM, told the Milken Institute’s annual gathering in Los Angeles that the $1.2tn asset manager was spending more time working with clients on debt ceiling strategies than protecting against recession risks. While he described it as a “low tail” risk, he added: “I just think that the market at this point doesn’t handle these types of situations well.”
Analysts at JPMorgan said they typically view Treasury’s estimates as “more conservative” than most private forecasters, reflecting in part a “negotiating tactic to force Congress to find lasting resolution well before a protracted debate could impact financial markets”.
The Congressional Budget Office also on Monday backed the Treasury’s estimate, which the analysts said suggests a “significant risk” of an earlier deadline.