WASHINGTON — Treasury Secretary Janet Yellen said Friday the United States likely has enough reserves to stave off a potential default by June 5.
“We now assume that unless Congress raises or suspends the debt ceiling by June 5, the Treasury Department will not have sufficient resources to meet government commitments,” Yellen wrote in a letter to the spokesman for the US government House of Representatives, Kevin McCarthy.
Friday’s new deadline provided much-needed leeway for negotiations between the White House and congressional Republicans, who appeared to be moving toward a compromise agreement on Friday to raise the two-year debt ceiling.
The last time the so-called “X-date” was updated was May 1, when Yellen told Congress that the United States had enough cash to meet its obligations by “early June and possibly as early as June 1.” “ to comply.
Friday’s letter marked the first time since Yellen began sending regular updates to Congress in January that the minister did not cap the date with a phrase like “as soon as.”
Instead, Yellen explained that the Treasury Department will “make scheduled payments in excess of $130 billion in the first two days of June,” leaving the agency with “an extremely limited amount of resources.”
“For the week of June 5, the Treasury Department is scheduled to process an estimated $92 billion in payments and remittances,” Yellen continued, and “our planned resources would not be sufficient to meet all of these commitments.”
To highlight how low Treasury Department reserves have sunk, Yellen said the agency was forced into an obscure action on Thursday to transfer $2 billion from a public sector pension fund to the government’s main borrowing arm, the Federal Financing Bank to transfer.
The move was necessary because “the extremely low level of remaining resources requires that I exhaust all available exceptional measures to avoid being unable to meet all of the government’s obligations,” Yellen wrote.
Markets closed higher on Friday, in part on optimism that an agreement would be reached between the House and Senate and the President signing it by June 1st.
But as talks dragged on this week, with those involved making little more than vague claims of “progress,” optimism that an agreement would be reached by the end of Friday faded.
Officials said Friday was widely the last possible day to reach an agreement and still have plenty of time to turn it into law, passing it in the House of Representatives and then the Senate before the previous “X-date” of June 1 say goodbye.
Yellen’s new appointment comes amid growing global concerns about US creditworthiness.
Rating agency Fitch announced on Wednesday that it had placed the US triple-A status on “rating watch negative”.
On Friday, officials wrote in a preliminary International Monetary Fund annual assessment of the United States that “a risky breach of the sovereign debt ceiling could create another entirely avoidable systemic risk for both the U.S. and the global economy.”
Should the United States technically default, even for a few days, it could send interest rates higher and undermine confidence in the US dollar. Economists note that America’s adversaries, particularly Russia and China, are gleefully watching the current debt ceiling standoff, certain that a loss of confidence in the US dollar would be to their advantage.
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