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Treasury Secretary Janet Yellen Predicts Debt Default Delayed Until June 5
United States Has Breathing Room Until June Agreement on Debt Ceiling
Treasury Secretary Janet Yellen said Friday that the United States will likely have enough reserves to push off a potential debt default until June 5.
“We now estimate that Treasury will have insufficient resources to satisfy the government’s obligations if Congress has not raised or suspended the debt limit by June 5,” Yellen wrote in a letter to House Speaker Kevin McCarthy.
The new date Friday provided some much needed breathing room to negotiations between the White House and congressional Republicans that appeared to be closing in on a compromise agreement Friday to raise the debt ceiling for two years.
The last time the so-called “X date” was updated was on May 1, when Yellen told Congress the United States had enough cash available to meet its obligations until “early June, and potentially as early as June 1.”
Markets Respond to Optimism for Deal before June 1
Markets closed higher Friday, buoyed in part by optimism that there would be a deal passed by the House and Senate and signed by the president by June 1.
Growing Concerns over U.S. Credit Rating
The new date came amid growing concerns around the world about the U.S. credit rating. On Wednesday, the Fitch credit rating agency announced it had placed the United States’ triple-A status on “rating watch negative.”
On Friday, in a preliminary International Monetary Fund annual assessment of the United States, officials wrote that “brinkmanship over the federal debt ceiling could create a further, entirely avoidable systemic risk to both the U.S. and the global economy.”
Potential Consequences of Debt Default
Should the United States technically default, even for just a few days, it could drive up interest rates and undermine confidence in the U.S. dollar. Economists note that America’s adversaries, and in particular Russia and China, are watching the current debt limit standoff with delight, secure in the knowledge that an erosion of trust in the U.S. dollar would accrue to their benefit.
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