Treasury Secretary Janet Yellen warned on Tuesday that the U.S. could run out of cash and default on Treasury bonds as soon as June 1, earlier than most had estimated. In response, President Joe Biden invited the bipartisan congressional leadership to meet at the White House this Tuesday to discuss increasing the debt limit to prevent a default that could have catastrophic global economic and financial consequences.
In the days following Yellen’s prediction, Washington partisans stayed in their corners: Democrats arguing for a debt limit increase separate from budget negotiations and Republicans demanding that any debt limit increase be paired with deep spending cuts and policy changes. Some recommend the debt limit be increased until September 30, when annual appropriations bills are due, allowing Congress and the President to package an additional debt limit increase with annual spending bills that reduce spending.
So far, Senate Republican Leader Mitch McConnell has refused to publicly engage in negotiations, saying Speaker Kevin McCarthy has taken the lead by passing spending cut legislation in the House. His leadership will be required, perhaps behind the scenes, to avoid a default.
The danger of failure is substantial for both parties as the economy sends mixed signals involving strong employment growth and weakened economic output. The Federal Reserve continued to increase interest rates last week by one-quarter of one percent. Government and economic leaders believe the impasse will be resolved in time, although the looming deadline means that missteps could prove disastrous.
Last week, the Senate continued confirming nominees and passed resolutions disapproving rules protecting prairie chickens as endangered species and solar panel tariffs, clearing the latter for a threatened veto by the President.
The Senate will continue confirmations this week and House Republicans plan a vote on anti-immigrant legislation as border enforcement rules expire later in the week.
