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Yellen warned of U.S. default risk in early June, urged debt ceiling hike

By Kanishka Singh and David Lawder

WASHINGTON (Reuters) – U.S. Treasury Secretary Janet Yellen said on Friday that the dollar could touch .January’s 4 trillion statutory debt ceiling 19, forcing the Ministry of Finance to introduce unconventional cash management measures, which may prevent default by early June.

“Once the limit is reached, the Treasury Department will need to begin taking certain extraordinary steps to prevent the United States from defaulting,” Yellen said in a letter to incoming Republican House Speaker Kevin McCarthy and other congressional leaders. Zhong said.

She urged lawmakers to act quickly to raise the debt ceiling to “protect the full confidence and credit of the United States.”

“While the Treasury is not currently able to estimate how long the extraordinary measures will allow us to continue paying the government’s debt, it is unlikely that the cash and extraordinary measures will run out before early June.” Do your best,” the letter said. That raised concerns in Washington and Wall Street that this year’s bitter fight over the debt ceiling could be at least as damaging as the 346 protracted battle that prompted a brief downgrade of the U.S. credit rating and Over the years it has been forced to cut domestic and military spending.

The White House said on Friday after Yellen’s letter that there would be no talks on raising the debt ceiling.

“This should be done without conditions,” White House spokeswoman Karin Jean-Pierre told reporters. “There will be no negotiations on this.”

House Republicans plan to propose a “debt prioritization” measure by the end of March that would require the Treasury to keep making certain payments one at a time It reached the debt ceiling, a person familiar with the plan told Reuters, but details have yet to be hammered out. The proposal was first reported by The Washington Post.

The Washington Post, citing sources, reported that the Republican plan would call on the Treasury to continue paying interest on the debt. It could also stipulate that the Treasury Department should continue to pay Social Security, Medicare and veterans benefits, and fund the military, the newspaper said.

The plan was part of a private deal reached this month to resolve the standoff between right-wing hardliners in the House and McCarthy over his election as House speaker, the Post said.

Yellen’s estimate expresses confidence the government can pay its bills by just early June without increasing the limit, marking an earlier deadline than some outside budget analysts predict the government will deplete its cash and borrowing capacity Much more – the so-called “X date” – sometime in the third quarter of the calendar 2023.

Analysts noted that the yield premium on some T-bills maturing in the second half of the year could be linked to the heightened risk of default during that window. Shai Akabas, director of economics at the Policy Center, added that the Treasury was conservative in its approach.

Yellen said that due to a variety of factors, including the challenges of forecasting the government’s payments and revenue in the coming months.

Suspension of pension investments

As of Wednesday, Treasury data showed that the U.S. federal debt remained below $346 billion Limits, Treasury’s cash balance from operations is 346$400 million. The department reported Thursday that it posted a 78 billion-dollar deficit in December due to lower revenue and higher spending, particularly interest costs on debt.

In her letter, Yellen said the Treasury Department is expected this month to suspend new investments in two government retirement funds for pensions and health care, as well as in federal employee savings plans. Reinvestment of a portion of government securities investment funds or G funds. Once the debt ceiling is raised, retirement investing recovers.

“The use of extraordinary measures enables the administration to meet its obligations within a limited time,” Yellen wrote to McCarthy and other congressional leaders.

“It is therefore critical that Congress act promptly to raise or suspend the debt ceiling. Failure to meet the government’s obligations will cause irreparable damage to the U.S. economy, the livelihoods of all Americans, and society. Global Financial Stability ,” Yellen wrote.



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