U.S. Faces ‘Elevated Risk’ of Default in Early June, a New Report Warns

U.S. Faces ‘Elevated Risk’ of Default in Early June, a New Report Warns

The United States faces an “increased risk” of running out of money to pay its bills between June 2 and June 13 if Congress doesn’t raise or suspend the country’s debt ceiling, according to a statement released Tuesday Analysis by the Bipartisan Policy Center, an influential source think tank that carefully tracks federal spending.

The analysis underscores the growing likelihood that the United States will default on its debt as early as next week. It comes amid negotiations between the White House and Republicans in Congress to reach a deal that would also raise the $31.4 trillion borrowing limit.

“In early June, the Treasury will be walking on very thin ice, which is getting thinner by the day,” said Shai Akabas, the center’s director of economic policy. “Obviously, the problem with skating on thin ice is that sometimes you fail.”

The center said the Treasury Department will operate with “dangerously low” cash reserves after Memorial Day and that each day of June comes with increasing risk. Since the United States technically hit its debt ceiling in January, the department has used accounting maneuvers known as extraordinary measures to delay a default. However, these measures are likely to be exhausted soon.

The center noted that the federal government could get a deferral if it can muster enough revenue to come by June 15, when quarterly tax payments are due. As a result, a payment default, the so-called X date, could be postponed to July.

However, Treasury Secretary Janet L. Yellen said this week that she thinks it’s unlikely the federal government will have enough cash to make it through mid-June.

In a letter to Congress on Monday, Ms Yellen reiterated her assessment that the X-date could be as early as June 1st. Her warning did not come with the caveats contained in her previous updates, which suggested the government’s cash reserves could potentially last a few more weeks. Instead, she emphasized the urgency of the situation.

“If Congress fails to raise the debt ceiling, it would cause great hardship for American families, harm our global leadership position and raise questions about our ability to defend our national security interests,” Ms. Yellen said.

As the X-date approaches, the Treasury Department is checking with federal agencies on the timing of upcoming spending. The Treasury Department recently sent a memo to authorities asking if scheduled payments could be delayed. The Washington Post previously reported on the memo.

The notice is similar to what the Treasury sent during the 2021 debt ceiling standoff and is part of how the Treasury is managing its cash reserves.

“In order to provide an accurate forecast around the debt ceiling, it is important that the Treasury Department has updated information on the amount and timing of payments from the authorities,” said Lily Adams, a Treasury Department spokeswoman. “As in previous stages of debt containment, the Treasury Department will continue to communicate regularly with all areas of the federal government about their planned spending.”