Treasury Secretary Janet Yellen warned Wednesday the department will probably exhaust its ability to avoid breaching the federal debt limit sometime in October and renewed her call on Congress to boost or suspend the ceiling.
“Based on our best and most recent information, the most likely outcome is that cash and extraordinary measures will be exhausted during the month of October,” Yellen said in a letter to Congress. “We will continue to update Congress as more information becomes available.”
Yellen said in July that there were scenarios in which the Treasury could exhaust its special measures and run out of cash “soon after Congress returns from recess” in September. Estimating the end point for averting a potential payments default has been more challenging this year due to hard-to-predict spending and revenue flows linked to the pandemic, the Treasury says.
Democratic lawmakers are expected to attach a measure addressing the debt limit to a stopgap spending bill that will be needed to ensure the federal government stays funded past the start of the fiscal year on Oct. 1.
However, Reuters reported Wednesday that House Speaker Nancy Pelosi said Democrats won’t include a provision to raise the debt limit in the spending bill.
Almost all Republican senators have pledged to vote against lifting or suspending the limit, tying that position to their antipathy toward Democrats’ moves to enact a $3.5 trillion package of social spending. Ten GOP senators would need to back boosting the debt ceiling for it to pass that chamber under so-called regular order.
Democrats have highlighted that they joined with Republicans in suspending the debt limit when President Donald Trump was in office and demanded a similar move by GOP lawmakers now.
“I again note that Congress has addressed the debt limit in recent years through regular order, with broad bipartisan support,” Yellen said in her latter to congressional leaders Wednesday.
The Treasury secretary also warned Congress against waiting until the department is on the verge of a payments default before addressing the debt ceiling.
“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 U.S., Yellen said.
A decade ago, just getting close to a historic debt default rattled financial markets, resulting in the first-ever credit downgrade of federal debt and tanking stocks, consumer confidence and approval ratings for both then-President Barack Obama and Congress.
The federal debt limit came back into effect — at a level of $28.4 trillion — at the beginning of August following a two-year suspension. The Treasury since then has deployed extraordinary accounting moves in order to allow the government to keep paying its bills.