Yellen warns US debt ceiling default deadline is in early June.

Treasury Secretary Janet Yellen has warned that the U.S. debt ceiling default deadline is fast approaching. Yellen confirmed at a virtual Wall Street Journal CEO Summit on May 24 that the deadline is early June, when her department might exhaust the extraordinary measures that have been employed since January.

The Consequences of Inaction

Yellen warned that payment prioritization isn’t operationally feasible and that the Treasury will be unable to cover some obligations following the so-called X-date. “It’s highly likely that we would run out of resources to meet all the government’s obligations in early June and possibly as early as June 1,” she said. “We no longer see very much likelihood that our resources will enable us to get to the middle or end of June.”

The Importance of Reaching a Timely Agreement

The stress she is observing in the financial markets, especially in bonds, “should be a reminder of the importance of reaching a timely agreement,” she said. Despite growing concerns that both sides will let the country default, Yellen said she believes that a debt limit agreement can still be reached between the White House and House Republicans. “We simply have to raise the debt ceiling,” Yellen stated.

What the Experts Say

According to the Bipartisan Policy Center, the X-date could fall between June 2 and June 13. But nearing this date could trigger the worst-case scenarios. “Come early June, Treasury will be skating on very thin ice that will only get thinner with each passing day. Of course, the problem with skating on thin ice is that sometimes you fall through,” Shai Akabas, executive director of the think tank’s Economic Policy Program, said in a statement. “The longer policymakers wait to address the debt limit, the more likely our economic fate will be determined by external actors.”

What Can Be Done?

With only days to avoid a default on the nation’s credit, Sen. Bernie Sanders (I-Vt.) wrote in a Fox News op-ed that President Joe Biden must invoke the 14th Amendment. “This is not a radical idea. Making sure that the United States continues to pay its bills regardless of whether the statutory increase in the debt ceiling is raised or not is an idea that has been supported by Republicans and Democrats,” he said. “It must be exercised.”

What Happens Next?

There has been some skepticism surrounding Yellen’s June 1 deadline, with several House Republicans urging the Treasury secretary to offer proof of her claims. However, House Speaker Kevin McCarthy (R-Calif.) has accepted the June 1 deadline. Rep. Garret Graves (R-La.), who has been the lead Republican negotiator on getting a debt ceiling deal, told reporters on May 23 that he can’t call Yellen’s forecasts into question. Rep. Patrick McHenry (R-N.C.), the chair of the House Financial Services Committee, also accepts the June 1 deadline, alluding to Yellen’s “varied economic experience” and stating that she is a “straight shooter.”

The Bottom Line

The U.S. debt ceiling default deadline is fast approaching, and the consequences of inaction could be dire. It’s important for policymakers to reach a timely agreement to avoid a default on the nation’s credit. The longer they wait, the more likely our economic fate will be determined by external actors.