Janet Yellen, the secretary of the Treasury, recently wrote that she believes the answer to be no.
She wrote that if Congress doesn’t raise or suspend the debt ceiling before then, “our best estimate is that we will not be able to continue to satisfy all of the government’s obligations by early June, and possibly as early as June 1.”
The letter, which was published on Monday afternoon and was addressed to House Speaker Kevin McCarthy, is probably going to rekindle concerns in the financial community that an impending default and the associated economic chaos could be just weeks away.
Since predicting that the X-date may be reached by early June in January, this was Yellen’s first update on the keenly watched topic.
Due to the upcoming significant inflow of funds into the Treasury’s coffers in mid-June, this time frame is crucial for the debt ceiling negotiations. Around that time, taxpayers will be submitting the second installment of their 2023 estimated tax payments.
Yellen admitted in her letter that the government might still make it by June 15, but she also noted that it’s possible that “the actual date that Treasury exhausts extraordinary measures could be a number of weeks later than these estimates.”
The general account of the Treasury Department has a closing balance of roughly $296.2 billion as of April 27. As the last April tax returns are finalised, the balance sheet can continue to get better for a few more days before starting to slowly deteriorate.
Experts worry that the balance falling to zero and the ensuing default might trigger sharp market falls, possibly trigger an instant recession, and have further global economic ramifications.
The estimate provided in Yellen’s letter on Monday is more aggressive than those recently provided by a number of outside analysts who minimise the likelihood of a June default.
Wrightson ICAP, a careful watcher of the billions that flow daily into and out of the Treasury department, provided one of those updated forecasts. According to a revised prognosis presented on Monday, the research team is currently mainly focused on late July as the “peak danger zone” for default. Prior to that June 15 deadline, Wrightson ICAP continues to forecast a 10–20% likelihood of default.
According to chief economist Lou Crandall of Wrightson ICAP, “the confidence interval around our June forecasts tightens a little more with each passing day, as the scope for surprises narrows.”
Michael Pugliese, a director and senior economist at Wells Fargo’s corporate and investment bank, was also quick to point out that it is incredibly difficult to predict with accuracy how much money the Treasury has in the billions.
In an interview, he said, “They’ll probably make it to the end of July but probably is a much different word when we’re talking about an accidental default,” outlining the potential repercussions if forecasts are off.
Experts are also quick to point out that, even if the administration is able to survive until June 15 without a deal, it has a very slim chance of surviving until the end of the summer.
The Congressional Budget Office (CBO) and the Bipartisan Policy Centre, who are also scheduled to produce their own projections in the coming weeks as they take into consideration a complete picture from the current tax season, are two other carefully followed evaluations that are anticipated soon.
The United States coming so close to defaulting, according to Shai Akabas of the Bipartisan Policy Centre, is “not a position befitting of a country considered the bedrock of the financial system, and only adds uncertainty to an already shaky economy.”
Yellen reiterated her calls for Congress to raise or suspend the debt ceiling as quickly as feasible and promised to update Congress in the upcoming weeks in her message.
She points out that despite policymakers preventing a default at the last minute, the 2011 debt ceiling stalemate prompted Standard & Poor’s to lower the US credit rating for the first time in history.
Waiting until the last minute to suspend or extend the debt limit will seriously undermine consumer and company confidence, increase the cost of short-term borrowing for taxpayers, and impair the United States’ credit rating, according to her.
In her letter on Monday, Yellen also described a new “extraordinary measure” that her department can use to prevent the nation from defaulting for a short while. State and Local Government Series (SLGS) Treasury securities would no longer be issued, she said, noting that this will “deprive state and local governments of an important tool to manage their finances.”
Currently, lawmakers and the White House are at odds over the matter. Last week, House Republicans passed a package that would raise the debt ceiling along with a number of other elements that Democrats find repugnant. Meanwhile, President Biden wants Congress to simply approve a clean raise and then negotiate other details afterward.
The White House said Monday night that President Biden has invited Speaker McCarthy to the White House on May 9 for a meeting with other Congressional leaders. Negotiations are anticipated to resume the following week.
This article has been revised.
Yahoo Finance’s Washington correspondent is Ben Werschkul.