- US Treasury Secretary Janet Yellen warns government could default by June 1
- The official's remarks have placed pressure on President Joe Biden's administration and other lawmakers to agree on a deal quickly
- Democrats and Republicans are divided on how to approach the issue and have not started negotiations
On Monday, US Treasury Secretary Janet Yellen warned that the country's government could run out of funds to pay bills by June 1 if Congress does not take immediate actions to raise the debt limit.
Her remarks have pressured United States President Joe Biden's administration and other lawmakers to reach a deal that would stave off a default. Yellen's relatively specific warning over the timeframe that the US government could default reduces the amount of time lawmakers have to negotiate to raise the debt limit.
Janet Yellen Warns US Could Default by June 1
However, due to the Treasury Department secretary's warning, lawmakers from the House, Senate, and Biden himself may be forced to begin ironing things out. This comes amid a high-stakes standoff between the Democratic leader and House Republicans who demand raising the debt limit by including deep spending cuts, as per the New York Times.
On Monday, the president called for the top four leaders in Congress to request a meeting set on May 9, where they will discuss the country's fiscal issues. Biden reached out to House Speaker Kevin McCarthy, Rep. Hakeem Jeffries, Sen. Chuck Schumer, and Sen. Mitch McConnell.
The situation comes as economists warn that failure to raise the debt limit would result in dire consequences for financial markets and could throw the global economy into chaos. Due to the US having a budget deficit, which means it is spending more than it is making, the government needs to borrow funds to pay its bills.
On top of paying for Social Security benefits, the government needs to have money for the salaries of military and government workers and make interest and other payments to the bondholders who own the debt.
Pressure to Negotiate a Debt Limit Agreement
In her Monday letter, Yellen said that federal cash flow is "inherently variable," meaning the US could default several weeks earlier than anticipated. According to Politico, the Treasury secretary added that Congress must act as soon as possible to increase or suspend the debt limit.
The Treasury Department's warning comes as cash from tax season has come in substantially lower than officials expected. The Congressional Budget Office has echoed Yellen's warning and said there is a "significantly greater risk" of a default coming in early June.
Technically, there is still a month between Yellen's warning letter and the earliest anticipated default date. However, congressional calendars shown on Monday revealed that there are only eight legislative days left this month when both House and Senate will be in session at the same time.
The situation could severely impact any efforts of lawmakers to negotiate on raising the debt limit that could gain enough support to pass in the GOP-led House and the Democrat-led Senate, said CNBC.
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