Treasury Secretary Janet Yellen on Tuesday again warned Congress about the dangers of not promptly raising the federal debt limit and said that, without action on their part, the U.S. could be forced to default on at least some of its obligations within a few weeks.
In a letter to congressional leaders, Yellen said that the latest projections show that Treasury will exhaust its options for making all of its scheduled payments on October 18. “At that point, we expect Treasury would be left with very limited resources that would be depleted quickly,” Yellen wrote. “It is uncertain whether we could continue to meet all the nation’s commitments after that date.”
Speaking at a Senate Banking Committee hearing, Yellen discussed what could happen if lawmakers fail to act, forcing the U.S. into default. “It would be disastrous for the American economy, for global financial markets, and for millions of families and workers whose financial security would be jeopardized by delayed payments,” Yellen said.
“It is imperative that Congress swiftly addresses the debt limit,” she added. “If it does not, America would default for the first time in history. The full faith and credit of the United States would be impaired, and our country would likely face a financial crisis and economic recession.”
Interest rates would almost certainly move higher if the U.S. defaults, Yellen said, which would raise the cost of servicing the country’s debt, among other deleterious effects. “Absolutely, it’s true that the interest payments on the government debt would increase,” Yellen told lawmakers.
The Treasury chief also pleaded with lawmakers to come together to address the issue, just hours after Republicans in the Senate blocked a bill that would have suspended the debt ceiling. “It is very important to recognize that raising the debt ceiling is about paying bills that Congress has incurred in the past,” Yellen said, noting that both Democratic and Republican administrations had added to the debt. “It’s a shared responsibility.”
Tense weeks ahead: Although the chances of a government shutdown at the end of the week appear to be diminishing as the path to a short-term funding deal comes into view, analyst Brian Gardner of the investment bank Stifel said in a note Tuesday that the debt ceiling is a different story. “A debt limit solution is less obvious,” Gardner wrote. “Both sides are dug in and exit strategies are not apparent.”
Gardner said he continues to believe that Congress will find a way to raise the debt ceiling before it’s too late, if only because it’s so obvious that it’s essential that they do so. But until lawmakers figure out how to get it done, “it could be a tense few weeks in Washington.”