Treasury chief issues US debt warning

US Treasury Secretary Janet Yellen has said the federal government will hit its debt limit as early as January 14 unless Congress takes action or the Treasury implements “extraordinary measures” to avoid default.

Under a 2023 budget deal, Congress suspended the debt ceiling – a cap set on how much money the US government can borrow – until January 1, 2025. Without further action, the Treasury will be unable to meet all its obligations.

In a letter to lawmakers on Friday, Yellen wrote that the department currently expects to reach the new limit between January 14 and January 23, at which point the special accounting maneuvers would be needed.

She pointed out that the US debt, which currently stands at roughly $36 trillion, is expected to decrease by about $54 billion on January 2 “due to a scheduled redemption of nonmarketable securities held by a federal trust fund associated with Medicare payments.”

The federal government can often operate for months under the ‘extraordinary measures’ but once the measures run out, there’s a risk of default unless lawmakers and the president agree to lift the limit on the US government’s ability to borrow.

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

The Treasury chief’s warning comes as the outgoing US President Joe Biden signed a funding bill into law last week that averted a government shutdown.

The approved package will keep the government funded at current levels through March 14. It includes $100 billion in disaster aid but does not include a debt-limit extension demanded by President-elect Donald Trump.

The agreement represents a compromise as “neither side got everything it wanted,” Biden said after signing the bill.

Trump has already signaled his support for abolishing the debt ceiling altogether, claiming it would be the “smartest thing [Congress] could do.”

In June 2023, after months of fierce negotiations, Congress managed to approve debt-limit suspension, averting what could have become the country’s first-ever default.