WASHINGTON — Treasury Secretary Janet Yellen said Friday that the United States will probably have enough reserves to postpone a potential debt default until June 5.
“We now estimate that the Treasury will have insufficient resources to meet the government’s obligations if Congress has not raised or suspended the debt limit by June 5,” Yellen wrote. in a letter House Speaker Kevin McCarthy.
Friday’s new date provided a much-needed breather for negotiations between the White House and congressional Republicans who appeared to be moving closer to a compromise deal on Friday to raise the two-year debt ceiling.
The last time the so-called “X date” was updated was May 1, when Yellen told Congress that the United States had enough cash on hand to meet its obligations through “early June, and possibly as soon as May 1.” June”.
Friday’s letter marked the first time since Yellen began sending regular updates to Congress in January that the secretary failed to note the date with a phrase like “as soon as.”
Instead, Yellen explained that Treasury would make more than “$130 billion in scheduled payments in the first two days of June,” leaving the agency with “an extremely low level of resources.”
“During the week of June 5, Treasury is scheduled to make payments and transfers worth an estimated $92 billion,” Yellen continued, and “our projected resources would be inadequate to meet all of these obligations.”
Underscoring how low Treasury reserves had fallen, Yellen said the agency was forced to implement an obscure move Thursday to transfer $2 billion from a civil service retirement fund to the government’s main lending institution, the Federal Financing Bank.
The move was necessary because “the extremely low level of remaining resources demands that I exhaust all available extraordinary measures to avoid being unable to meet all of the government’s commitments,” Yellen wrote.
Markets closed higher on Friday, fueled in part by optimism that a deal would be approved by the House and Senate and signed by the president by June 1.
But as the talks dragged on this week with little more than vague claims of “progress” from those involved, optimism that a deal would be reached by the end of Friday faded.
Officials said Friday was widely seen as the last possible day to reach a deal and still have enough time to turn it into legislation, pass it in the House, and then pass it in the Senate before the earlier “X date” of May 1. June.
Yellen’s new appointment came amid growing concerns around the world about America’s credit rating.
On Wednesday, credit ratings agency Fitch announced that it had placed the triple-A US state on “negative rating watch.”
On Friday, in a preliminary report from the International Monetary Fund annual evaluation of the United States, the officials wrote that “brisk policy on the federal debt ceiling could create additional, entirely avoidable, systemic risk to both the US and the global economy.”
Should the United States technically default, even for a few days, it could raise interest rates and undermine confidence in the US dollar. Economists say that America’s adversaries, and in particular Russia and China, are watching the current debt limit showdown with delight, safe in the knowledge that an erosion of confidence in the US dollar would work to their advantage.