Yellen says US could run out of liquidity by October 18 unless debt ceiling increases

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By David Lawder, Susan Heavey

WASHINGTON (Reuters) – U.S. Treasury Secretary Janet Yellen told lawmakers on Tuesday that the government could run out of cash by October 18, unless Congress acts to lift the federal debt limit before that the Treasury Department does not exhaust its efforts to conserve resources.

Treasury Secretary Janet Yellen testifies during a Senate Banking, Housing and Urban Affairs Committee hearing on the CARES Act, at the Hart Senate Office Building in Washington, DC, United States on 28 September 2021. Kevin Dietsch / Pool via REUTERS

At this point, we would expect the treasury to end up with very limited resources that would quickly run out, Yellen told lawmakers at a Senate Banking Committee hearing, echoing comments she made. in a letter to lawmakers.

It is not certain that we can continue to meet all of the nations’ commitments after that date, she said in the letter, a day after Senate Republicans rejected a measure to increase the limit on borrowing from nations to pay for government spending previously incurred.

Yellen appeared with Federal Reserve Chairman Jerome Powell on Tuesday before the Senate Banking Committee to review the two agencies’ actions to protect the economy from the coronavirus pandemic.

Asked repeatedly during the hearing about the impending deadline for lifting the debt ceiling, Yellen said failing to do so would be a disastrous event that would trigger a financial crisis and calamity.

Powell also urged Congress to raise the debt limit in time to avoid default.

The Treasury had already taken extraordinary steps to keep the flow of public funds flowing after the debt ceiling was hit over the summer. But those measures will expire in about 20 days, although the exact date may vary, Yellen said.

Yellens’ warning was followed by a massive sell off of some Treasuries due to mature next month, with the yield on 1-month Treasuries reaching their highest level in months.

So far, investors have widely believed that the deadlock in Congress on the issue will be resolved before the government reaches the default threshold, although earlier in September, investment bank Goldman Sachs described the current stalemate as the riskiest debt deadline in a decade.

In testimony prepared ahead of the hearing, Yellen said the United States is expected to return to full employment next year despite headwinds from the Delta coronavirus variant. The recovery from a recession induced by the COVID-19 pandemic remains fragile but rapid.

As our economy continues to grow and recover a substantial portion of the jobs lost in 2020, the significant challenges of the Delta variant continue to dampen the speed of the recovery and present substantial obstacles to a vibrant economy, Yellen said.

Nonetheless, I remain optimistic about the medium-term trajectory of our economy, and I expect that we will return to full employment next year.

Reporting by David Lawder, editing by Nick Zieminski and Andrea Ricci

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