Treasury Secretary Janet Yellen reportedly urged Congress to increase the debt ceiling as soon as possible, warning that the government could be unable to pay its obligations beyond early June.
Ms. Yellen stated in a written letter to congressional leaders that the government will reach the nearly $31.4 trillion borrowing limit on Jan. 19, when the Treasury Department would begin applying so-called extraordinary measures to control the government’s cash flow.
Ms. Yellen’s letter starts off what are anticipated to be contentious and politically tough conversations in Congress.
House Republicans, who recently seized control of the chamber, are insisting that any agreement to raise the debt ceiling include budget cutbacks, which Democrats have already rejected outright. Democrats hold the White House and the Senate.
Failure to pay US government bondholders, Social Security claimants, and others on time, according to Ms. Yellen, may have far-reaching economic effects.
During the Covid-19 epidemic, Republicans and Democrats pumped more than $5 trillion into the economy, the federal deficit—the yearly shortfall between government expenditure and revenue—exploded.
As the pandemic aid programs came to an end, the government deficit shrank dramatically last fiscal year.
The government deficit has climbed by 12% this fiscal year, which began in October, compared to last year.
Increasing borrowing costs on the government’s debt are the key driver of higher government expenditure this fiscal year, as the Federal Reserve raises interest rates to combat inflation.