Yellen says US could run out of liquidity by October 18 unless debt ceiling increases

U.S. Treasury Secretary Janet Yellen testifies before the Senate Appropriations Subcommittee on Financial Services regarding the Treasury Budget Request for Fiscal Year 22 at Capitol Hill in Washington, DC, United States, on June 23, 2021. Shawn Thew / Pool via REUTERS

WASHINGTON, Sept.28 (Reuters) – U.S. Treasury Secretary Janet Yellen told lawmakers on Tuesday that the government could run out of cash by October 18, unless Congress acts to lift the cap on the federal debt before the Treasury Department exhausts efforts to preserve resources.

“At this point, we would expect the Treasury to end up with very limited resources that would quickly run out,” Yellen told lawmakers at a Senate Banking Committee hearing, echoing comments she said. made in a letter to lawmakers.

“It is not certain that we can continue to meet all of the nation’s commitments after this date,” she said in the letter, a day after Senate Republicans rejected a measure to increase the nation’s borrowing limit to pay for previously incurred government expenses. Read more

Yellen appeared with Federal Reserve Chairman Jerome Powell on Tuesday before the Senate Banking Committee to review the two agencies’ actions to protect the economy from the coronavirus pandemic.

Asked several times during the hearing about the approaching deadline to raise the debt ceiling, Yellen said failing to do so would be a “catastrophic” event that would trigger a “financial crisis and calamity.”

Powell also urged Congress to raise the debt limit in time to avoid default.

The Treasury had already taken “extraordinary measures” to maintain public funds after reaching the debt ceiling over the summer. But those measures will expire in about 20 days, although the exact date may vary, Yellen said.

Yellen’s warning was followed by a massive sell-off of some Treasury securities due to mature next month, with the yield on the 1-month Treasury bill reaching its highest level in months.

So far, investors have widely believed that the deadlock in Congress on the issue will be resolved before the government reaches the default threshold, although in early September investment bank Goldman Sachs described the current stalemate as “the riskiest debt limit deadline in a decade.” Read More

In prepared testimony ahead of the hearing, Yellen said the United States is expected to return to full employment next year despite headwinds from the Delta coronavirus variant. The recovery from a recession induced by the COVID-19 pandemic remains “fragile but rapid”.

“As our economy continues to grow and recover a substantial portion of the jobs lost in 2020, the significant challenges of the Delta variant continue to dampen the speed of the recovery and present substantial obstacles to a vibrant economy,” Yellen said. .

“Still, I remain optimistic about the medium-term trajectory of our economy, and I expect that we will return to full employment next year.”

Reporting by David Lawder, editing by Nick Zieminski and Andrea Ricci

Our standards: Thomson Reuters Trust Principles.

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