Janet Yellen Says Treasury Could Exhaust Cash Reserves by Oct. 18 if Debt Limit Isn’t Raised

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The Treasury Secretary is set to testify with Fed Chairman Jerome Powell before lawmakers on Tuesday

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Senate Republicans blocked a Democratic bill on Monday that would fund the government and raise the borrowing limit, just days before stoking political exposure to government finances.

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Senate Democrats sought to pass a House-approved stopgap measure that funds the government until December 3, 2021, and suspends debt limits until December 16, 2022. They are rushing to send legislation to President Biden’s desk before the government’s current funding. 1 at 12:01 a.m., which is just one of several big-ticket topics lawmakers are tackling this week.

The failure of the procedural vote on Monday could prompt Democrats to reduce the short-term spending measure and debt-limit vote to avoid the risk of a government shutdown at the end of the week. Ms Yellen’s letter clarifies that lawmakers will then have only 18 days to approve the debt limit suspension, before the Treasury can begin to miss payments on its obligations, triggering a default that could trigger a default in markets. can be sent in a tail.

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The Treasury has been using emergency measures to conserve cash since August 1, when the debt limit was reinstated after a two-year suspension. Ms Yellen has warned lawmakers for months that the government could end those measures this fall, and said earlier this month that the date could come as early as October. Tuesday’s letter is the first time it has provided a specific estimate for the so-called X-date.

The US faces an estimated $20 billion in Social Security payments as well as $6 billion in individual tax refunds as of October 20, according to forecasts from the Bipartisan Policy Center. It faces another $49 billion in payments by October 29, and then an additional $80 billion in payments on November 1, including $14 billion in interest on federal loans.

Ms Yellen reiterated a plea for lawmakers to agree to raise the debt limit, which does not approve the new spending, but instead allows the government to pay the bills before the Senate Banking Committee. Already agreed in his testimony on Tuesday, where he is set to appear with Fed Chairman Jerome Powell.

Ms Yellen said the US could face a “financial crisis and an economic downturn” if the Treasury is unable to repay bondholders in the form of maturing debt. “It is imperative that Congress rapidly address the debt limit. If it does not, America will default for the first time in history,” she said.

Senate Republicans have lined up against the increase in the debt limit, saying Democrats should increase the ceiling on themselves as the party in power. Democrats have emphasized that raising the debt limit is a shared responsibility on both sides, and said that during the Trump administration the vote to lift the debt limit was bipartisan.

The yield on the 10-year Treasury note rose to 1.545% on Tuesday morning, their highest level in three months.

The debt-limit deadlock is already rolling through short-term money markets, as investors demand higher yields to hold Treasuries with the greatest risk of delayed payments. Typically, investors demand higher returns for Treasuries with longer maturities to offset the risk that the Fed may raise interest rates or that inflation will accelerate, reducing the value of those bonds.

But in recent weeks, short-term Treasury bills maturing from mid-October to mid-November have offered higher yields than those maturing a few months later, a sign that some investors are hedging a potential default. How to give up some securities for

Separately, Ms Yellen said the US economy is in the midst of a “delicate but rapid recovery” from the recession caused by the coronavirus pandemic in March 2020. Ms Yellen said despite the recent slowdown in hiring and consumer spending due to Delta. As for the coronavirus, she said she still expects the labor market to return to full employment next year.

Policymakers have unexpectedly faced stronger-than-expected inflation this year, complicating the outlook for interest rates in the coming years. The Fed indicated last week that it may begin to reverse its pandemic stimulus policies at its next meeting, November 2-3, by gradually reducing its purchases in government securities and mortgage bonds to $120 billion a month.

Mr. Powell indicated in testimony for Tuesday’s hearing that the rise in inflation this year, driven primarily by supply-chain disruptions and other challenges related to reopening the economy, has been larger and more stable than expected. Using the Fed’s preferred gauge, inflation has hovered over 4% in recent months, but Mr. Powell said he believes prices will eventually return to the central bank’s 2% target.

Meanwhile, the Treasury Department is tasked with spending billions of dollars in rental aid and assistance to state and local governments. Recipients of some of those programs have had difficulties getting federal relief money, and much aid “remains a bottleneck at the state and local level,” Ms Yellen said. It encouraged states and municipalities to expedite the distribution of federal aid to qualified tenants and landlords.

write to Nick Timiros at [email protected] and Kate Davidson at [email protected]

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