WASHINGTON – Treasury Secretary Janet Yellen said Friday that the United States will likely have enough reserves to stave off a possible debt default by June 5.
“We now estimate that the Treasury will have sufficient resources to meet the government’s obligations if Congress does not raise or suspend the debt ceiling by June 5,” Yellen wrote in a letter to House Speaker Kevin McCarthy.
Friday’s new date provided some much-needed breathing room for talks between the White House and congressional Republicans, who appeared to be nearing a compromise on Friday to raise the debt ceiling for two years.
The so-called “X date” was last updated on May 1, when Yellen told Congress that the United States had enough cash to meet its obligations by “early June and possibly June 1.”
Friday’s letter was the first time since Yellen began sending regular updates to Congress in January that the secretary did not preface the date with the phrase “very early.”
Instead, Yellen explained that the Treasury will make more than “$130 billion in scheduled payments” in the first two days of June, leaving the agency with “extremely low resources.”
“The Treasury is expected to make approximately $92 billion in payments and transfers during the week beginning June 5,” Yellen continued, and “our projected resources will be insufficient to meet all of these obligations.”
Underscoring how low Treasury reserves have fallen, Yellen said the agency had to use an obscure measure on Thursday to transfer $2 billion from the civil service pension fund to the government’s main borrowing institution, the Federal Reserve Bank.
The move was necessary because “extremely low levels of remaining resources require me to exhaust all available emergency funds to avoid being unable to meet all of the government’s obligations,” Yellen wrote.
Markets closed higher on Friday, buoyed in part by optimism that an agreement will be passed by the House and Senate and signed by the president by June 1.
But as talks dragged on this week, with little more than vague claims of “progress” from those involved, optimism faded that a deal would be reached by the end of Friday.
Officials said Friday was widely seen as the last possible day to reach a deal, with plenty of time left to sign it into law, pass it in the House of Representatives and then pass it in the Senate before the previous “X-date” of June 1.
Yellen’s new date came amid growing concerns around the world about the US credit rating.
On Wednesday, credit rating agency Fitch announced that it had put the United States’ triple-A status on a “negative watch rating.”
In the International Monetary Fund’s preliminary annual assessment of the US on Friday, officials wrote that “a deviation from the federal debt ceiling could create further, entirely avoidable systemic risk to both the US and the global economy.”
If the United States technically defaulted, even for just a few days, it could raise interest rates and undermine confidence in the US dollar. Economists note that America’s adversaries, particularly Russia and China, are happy to watch the current standstill on the debt limit, convinced that the erosion of confidence in the US dollar will benefit them.