Treasury Secretary Janet Yellen told Congress that the Treasury would not be able to pay all government invoices without parliamentarians paying. Raise federal borrowing limits By October 18th.
“At that point, the Treasury has very limited resources left and is expected to be exhausted soon. It is uncertain whether we will be able to continue to fulfill all of the country’s commitments after that date. “Not,” she said in a letter to Congressional leaders Tuesday morning.
Senate Republican Party on Monday Blocked Democratic bill It will fund the government, raise borrowing limits, and escalate the political confrontation over the government’s finances a few days before it runs out.
The Senate Democrats sought to pass a House-approved temporary measure that would fund the government until December 3, 2021 and suspend debt restrictions until December 16, 2022. It will expire at 12:01 am on October 1st. Congressmen are juggling this week..
A failed procedural vote on Monday could encourage Democrats to separate short-term spending measures from debt-restricted voting to avoid the risk of government closures on weekends. A letter from Mr. Yellen reveals that Parliamentarians have only 18 days to approve the suspension of debt restrictions, and the Treasury may begin to miss payments for its obligations, causing defaults. May be a tailwind for the market..
The Treasury has taken urgent steps to save cash since August 1, when debt limits were restored after a two-year suspension. Yellen warned lawmakers for months that the government could do these steps later this fall, saying it could be as early as October earlier this month. Tuesday’s letter is the first time she has provided a concrete quote for the so-called X-date.
The Bipartisan Policy Center predicts that the United States will face an estimated $ 20 billion in social security payments and a personal tax refund of about $ 6 billion on October 20. We have an additional $ 49 billion in payments by October 29th and an additional $ 80 billion in payments on November 1st. This includes interest on federal debt of $ 14 billion.
In a testimony at the Senate Banking Commission on Tuesday, Mr. Yelen will raise the debt limit to disapprove of new spending and instead allow the government to pay bills that it has already agreed to bear. Pleaded with lawmakers to agree. It will appear alongside Federal Reserve Board Chair Jerome Powell.
Yellen said the United States “is likely to face a financial crisis and recession” if the Treasury fails to repay bondholders as debt matures. “It is imperative that Congress deal quickly with debt limits, otherwise the United States will default for the first time in history,” he said.
The Senate Republican Party opposes raising the debt limit, saying it should raise its cap as the Democratic Party is in power. The Democratic Party emphasized that raising the debt limit is a common responsibility of both parties, and said the vote to raise the debt limit during the Trump administration was bipartisan.
Yields on 10-year government bonds soared to 1.545% on Tuesday morning, reaching their highest level in three months.
Debt Limit Standoffs Already spilling over to the money marketsInvestors demand higher yields to hold government bonds with the highest risk of late payments. Investors typically demand higher yields on long-maturity government bonds to compensate for the risk that the Fed will raise interest rates or accelerate inflation and devalue these bonds.
However, short-term Treasury bills, which mature in the last few weeks from mid-October to mid-November, offer higher yields than those that mature in the next few months, potentially for some investors. Indicates that you are avoiding certain securities to prevent defaults.
Separately, Yellen said the US economy is in the midst of a “fragile but rapid recovery” from the recession caused by the March 2020 coronavirus pandemic. Employment slowdown Regarding personal consumption by the delta variant of the coronavirus, she said she still hopes the labor market will return to full employment next year.
Policymakers faced an unexpected outburst of inflation this year, much stronger than expected. This has complicated the outlook for interest rates over the next few years. Last week’s Fed is likely to begin a reversal of pandemic stimulus measures on its next meeting, November 2-3, by gradually cutting $ 120 billion in monthly purchases of government and mortgage securities. I showed that.
Federal Reserve Board Chairman Jerome Powell said in a hearing on Tuesday that this year’s inflation surge was more than expected, driven primarily by supply chain bottlenecks and other challenges related to economic resumption. He said it was bigger and more permanent. Using the Federal Reserve Board’s priority gauge, inflation has skyrocketed to more than 4% in recent months, but Powell believes prices will eventually return to the central bank’s 2% target. I said there is.
Meanwhile, Yellen’s Treasury is tasked with spending billions of dollars on rental aid and aid to state and local governments. Some of these programs face difficulties in providing federal bailouts to recipients, and too much aid “is a bottleneck at the state and local levels,” Yellen said. .. She advised states and local governments to speed up the distribution of federal aid to qualified lessors and landlords.
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Janet Yellen says the Treasury could run out of cash reserves by October 18 if debt limits aren’t raised.
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