US may hit new debt limit by Jan. 14, Treasury Secretary Janet Yellen warns Congress

The Treasury Department may need to take “extraordinary measures” by as early as Jan. 14 to prevent the US from defaulting on its debt, Treasury Secretary Janet Yellen told lawmakers in a letter on Friday.

Yellen urged lawmakers in Congress to act “to protect the full faith and credit of the United States.”

US debt is expected to decrease by about $54 billion on Jan. 2 “due to a scheduled redemption of nonmarketable securities held by a federal trust fund associated with Medicare payments,” she added.

She said: “Treasury currently expects to reach the new limit between January 14 and January 23, at which time it will be necessary for Treasury to start taking extraordinary measures.”

Under a 2023 budget deal, Congress suspended the debt ceiling until Jan. 1, 2025. The US Treasury will be able to pay its bills for several more months, but Congress will have to address the issue at some point next year.

Failure to act could prevent the Treasury from paying its debts. A US debt default would likely have severe economic consequences.

AP

A debt limit is a cap set by Congress on how much money the US government can borrow. Because the government spends more money than it collects in tax revenue, lawmakers need to periodically tackle the issue — a politically difficult task, as many are reluctant to vote for more debt.

Congress set the first debt limit of $45 billion in 1939, and has had to raise that limit 103 times since, as spending has consistently outrun tax revenue. Publicly held debt was 98% of US gross domestic product as of October, compared with 32% in October 2001.