The U.S. could run out of money by June 1 if debt ceiling isn't raised, Yellen cautions

Bloomberg News

WASHINGTON — In a letter to Congress, U.S. Treasury Secretary Janet Yellen said that if Congress fails to raise the debt ceiling, the United States may not be able to meet all of its debt obligations as soon as June 1, adding renewed urgency to ongoing—but as of yet— fruitless negotiations between the Democrats and Republicans

Monday's projection leaves lawmakers with a more truncated timeline than was previously indicated, pushing the U.S. and global economy perilously close to a financial crisis. Yellen noted that the Treasury Department has some room to maneuver, but that time is running out. 

"The estimate is based on currently available data, as federal receipts and outlays are inherently variable, and the actual date that Treasury exhausts extraordinary measures could be a number of weeks later than estimates," Yellen noted.

The debt ceiling is a legal limit set by Congress on the amount of money the government can borrow to meet its spending obligations. If Congress fails to raise the debt ceiling by the so-called "X-Date," when the government runs out of money, the consequences could be severe and widespread, not least of which is the potential to tarnish the country's credit rating. A default could also affect the value of the U.S. dollar, resulting in higher borrowing costs for the government.

A failure to raise the debt ceiling could also lead to a government shutdown, stalling essential government services and disrupting the lives of millions of Americans, particularly the 9 million Americans who work for, or receive, contracts or grants from the federal government.

President Biden has called on Congress to pass a "clean" debt ceiling increase without conditions, but the Republican-controlled House recently passed a bill that would tie a debt ceiling increase to a raft of spending cuts. Senate Majority Leader Chuck Schumer, D-N.Y., has scheduled hearings on the House bill, which he called a "hard-right ransom note to the American people."

Policymakers and leaders are increasingly aware of the urgency of the situation and the need for immediate action. Following Yellen's statement, President Biden extended an invitation to House Speaker Kevin McCarthy, Schumer and others for a meeting on May 9 at the White House.