Yellen warns U.S. could default on debt as early as June 1

Treasury Secretary Janet Yellen said Monday the U.S. government might not be able to pay its bills as early as June 1 if Congress does not raise or suspend the debt limit. 

Her warning comes as Republican lawmakers and the Biden administration appear to be no closer to reaching a deal on the debt than they were at the beginning of the year, when she first started raising alarms about a looming crisis.

“After reviewing recent federal tax receipts, our best estimate is that we will be unable to continue to satisfy all of the government’s obligations by early June, and potentially as early as June 1, if Congress does not raise or suspend the debt limit before that time,” Yellen wrote in a letter to lawmakers. 

She first wrote to Congress in January to let them know that the U.S. would have to begin using so-called “extraordinary measures” to pay the bills. At the time, she said that the U.S. could go into default as soon as June if Congress did not act, though she did not at that time specify when in June this could occur. Yellen said it would be impossible to offer an exact date but said she’d continue to update Congress.

“Given the current projections, it is imperative that Congress act as soon as possible to increase or suspend the debt limit in a way that provides longer-term certainty that the government will continue to make its payments,” Yellen wrote. 

She also warned lawmakers against waiting until the last minute to reach an agreement, writing that they learned from previous debt limit impasses that it can “cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States.” 

“If Congress fails to increase the debt limit, it would cause severe hardship to American families, harm our global leadership position, and raise questions about our ability to defend our national security interests,” Yellen wrote.

Economists have been closely monitoring revenues coming in as the debt limit loomed. Earlier this year, the Bipartisan Policy Center estimated the so-called “x-date” would land at some time during the summer or early fall, but with tax receipts down in last month, some bank economists started to move up their timelines on when the nation could default.