Yellen Warns of Missed Payments if Debt Limit Is Not Lifted

Treasury Secretary Janet L. Yellen said on Wednesday that it was “almost certain” that the United States would not have enough cash to continue to pay all of its bills on time beyond early June and that she would soon provide Congress with a more precise update about when the nation could default if the debt limit was not raised.

The comments, made at a WSJ CEO Council event, come as negotiators for the White House and House Republicans have been racing to reach a deal to raise the debt limit and reduce government spending that Congress can pass before June 1. The Treasury secretary reiterated her warning that a default would inflict severe damage on the U.S. economy and made the case that she would be left with no good options to contain the fallout.

“Treasury and President Biden will face very tough choices if Congress doesn’t act to raise the debt ceiling and if we hit the so-called X-date without that occurring,” Ms. Yellen said. “There will be some obligations that we will be unable to pay.”

Ms. Yellen declined to elaborate on how exactly she would proceed if the debt limit was not lifted, but she dismissed the idea that “prioritizing” certain payments that the government is required to make would be an easy solution. She noted that government payment systems were devised to pay bills on time, not to decide which ones to pay.

“Prioritization is not really something that is operationally feasible,” Ms. Yellen said.

This week, Ms. Yellen notified Congress that the federal government could run out of cash as soon as June 1. Her projections have been met with skepticism by some House Republicans, who have been calling on her to produce an analysis that details the Treasury Department’s cash reserves to prove that the deadline is real.

Ms. Yellen said on Wednesday that there was considerable uncertainty associated with tracking government payments and receipts but that she planned to provide as much clarity as possible in her next update.

The Treasury secretary said she was already seeing “the beginnings” of stress in financial markets due to the brinkmanship. However, she said she had not been engaging with investors about what would happen if the debt limit was not lifted.

“We are committed to not having missed payments and raising the debt ceiling,” Ms. Yellen said. “We are not involved in planning for what happens if there is a default.”

Despite her concerns, Ms. Yellen said that she was hopeful the negotiations would be successful and that the Biden administration has been committed to policies that would reduce deficits.

“I think a deal is possible,” Ms. Yellen said. “They’re working toward an agreement that could command bipartisan support.”

Alan Rappeport is an economic policy reporter, based in Washington. He covers the Treasury Department and writes about taxes, trade and fiscal matters. He previously worked for The Financial Times and The Economist. @arappeport

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