Debt ceiling deadline extended to June 5, says Yellen

US Treasury Secretary Janet Yellen said on Friday the deadline for the debt ceiling was extended to June 5, four days later than scheduled.

Still, Yellen reiterated his warning in a letter to Congress that inaction on raising the borrowing limit “would cause serious hardship.”

Yellen’s latest letter to lawmakers on the “X-date” came as Congress rose for the Memorial Day long weekend. She said the Treasury Department deployed an extraordinary measure not used since 2015 to bring the US financial situation to this point.

Date X comes when the government no longer has enough financial cushion to pay all its bills, having exhausted the measures it has been using since January to stretch existing funds.

Earlier Friday, House Speaker Kevin McCarthy said his Republican debt negotiators and the White House were working to reach a deal with President Joe Biden to cut federal spending and lift the borrowing limit. of the country before the upcoming deadline.

They had hoped to end weeks of frustrating talks and strike a deal by this weekend. The Treasury now says the government could start running out of money as early as a week from Monday, sending the United States into a potentially catastrophic default with economic fallout around the world.

“The world is watching,” International Monetary Fund Managing Director Kristalina Georgieva said after meeting Yellen on Friday. “Let’s remember that we are now in the 12th hour.”

Democrat Biden and the Republican President were narrowing the differences, working to lock in the details of a two-year deal that would limit federal spending and lift the statutory borrowing limit after next year’s presidential election.

Any deal would have to be a political compromise, with support from Democrats and Republicans to pass the divided Congress.

“We know this is a crisis,” McCarthy said as he arrived at the empty Capitol, acknowledging that more progress needed to be made.

In remarks at the White House honoring the champion women’s basketball team at Louisiana State University, Biden gave a shoutout to one of his top negotiators saying she’s “putting a deal in place, let’s hope so”.

He was referring to Office of Management and Budget Director Shalanda Young, who attended the event, as did Representative Garret Graves of Louisiana, a top Republican negotiator.

As the outlines of the deal take shape to cut spending for 2024 and impose a 1% cap on spending growth for 2025, the two sides remain locked in on various provisions. The debt ceiling, now at $31 trillion, would be lifted for two years to pay the bills incurred by the country.

Lawmakers tentatively aren’t expected to return to work until Tuesday, just two days before the “X date” of June 1, when Treasury Secretary Yellen said the United States could face a default.

Biden will also be absent this weekend, leaving Friday for the presidential retreat in Camp David, Maryland, and Sunday for his home in Wilmington, Delaware. The Senate is on recess and will return after Memorial Day.

Weeks of negotiations between Republicans and the White House failed to yield a deal — in part because the Biden administration resisted negotiating with McCarthy over the debt limit, arguing that full faith and credit of the country should not be used as leverage to extract other partisan priorities.

Meanwhile, ratings agency Fitch Ratings has placed US AAA credit on “negative watch rating”, warning of a possible downgrade.