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Thursday, February 2, 2023

Yellen tells Congress US expected to hit debt limit next week

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Treasury Secretary Janet Yellen has notified Congress that the US is projected to reach its debt limit on Thursday and will then resort to “extraordinary measures” to avoid default.

In a letter to House and Senate leaders, Ms Yellen said her actions will buy time until Congress can pass legislation that will either raise the debt limit or suspend it again for a period of time.

Those measures include delaying some payments, such as contributions to federal employees’ retirement plans, in order to provide some headroom to make other payments that are deemed essential, including those for Social Security and debt instruments.

“Failure to meet the government’s obligations would cause irreparable harm to the US economy, the livelihoods of all Americans, and global financial stability,” she said.

“Indeed, in the past, even threats that the US government might fail to meet its obligations have caused real harms, including the only credit rating downgrade in the history of our nation in 2011.”

Ms Yellen said that while Treasury cannot estimate how long the extraordinary measures will allow the US to continue to pay the government’s obligations, “it is unlikely that cash and extraordinary measures will be exhausted before early June”.

The debate over raising the debt ceiling will almost certainly result in a political showdown between newly empowered GOP lawmakers who now control the House and US president Joe Biden and Democrats, who had enjoyed one-party control of Washington for the past two years.

Past forecasts suggest a default could instantly bury the country in a deep recession, right at a moment of slowing global growth as the US and much of the world face high inflation because of the pandemic and Russia’s invasion of Ukraine.

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