Janet Yellen warns of ‘extraordinary measures’ as U.S. on track to hit debt ceiling next week

Treasury Secretary Janet Yellen told Congress on Friday that the US is expected to reach the debt limit on Thursday and will then use “extraordinary measures” to avoid default.

In a letter to House and Senate leaders, Yellen said her actions would buy time until Congress could pass legislation that would raise the debt limit from its current level of just over $31 trillion — or delay it for a while.

“I am writing to inform you that as of Thursday, January 19, 2023, the outstanding debt of the United States is projected to reach the statutory limit,” Yellen said. “Once the limit is reached, the Treasury must begin taking extraordinary measures to prevent the United States from defaulting on its obligations.”

The measures include suspending some payments, such as contributions to the federal employee pension plan, in order to give headroom to make other payments deemed necessary, including for Social Security and debt instruments.

“The government’s failure to meet its obligations will cause irreparable damage to the U.S. economy, the livelihoods of all Americans and global financial stability,” he said. “In fact, in the past, even the threat that the US government might default on its obligations has caused real harm, including the only downgrade in our nation’s history in 2011.”

Yellen said that while the Treasury could not estimate how long the extraordinary measures would allow the US to continue paying its government obligations, “it is unlikely that cash and extraordinary measures will be exhausted before the beginning of June.”

The debate over raising the debt ceiling is sure to spark a political battle between the newly elected GOP lawmakers who now control the House, and President Joe Biden and the Democrats, who have gained one-party control of Washington for the past two years.

Past forecasts have shown the default could immediately bury the country in a deep recession, at a time when growth is accelerating as the US and most of the world experience high inflation due to the pandemic and Russia’s invasion of Ukraine.