May 24, 2023 Latest on debt ceiling negotiations

Treasury Secretary Janet Yellen said Wednesday that she will try to be more precise about when the nation could start missing payments in her next advisory to Congress.

But she repeated that it’s tough to pinpoint the X-date, when the nation may not be able to satisfy all its bills, even a few weeks in advance because of the inherent uncertainty of incoming revenue and outgoing obligations.

In her letter to Congress on Monday, she said it is “highly likely that Treasury will no longer be able to satisfy all of the government’s obligations if Congress has not acted to raise or suspend the debt limit by early June, and potentially as early as June 1.”

She stressed on Wednesday that if negotiations between the White House and House Republicans fail to produce a deal in time, “there will be some difficult choices to make.”

“Treasury and President Biden will face very tough choices if Congress doesn't act to raise the debt ceiling,” Yellen said. “And if we hit the so-called X-date without that occurring, there will be some obligations that we will be unable to pay.” 

The secretary declined to detail exactly what Treasury can do in terms of payments, but said that “as a general matter, prioritization is not really something that's operationally feasible.”

“Our payment systems have been constructed in order to pay our bills, not to decide which bills to pay and which bills not to pay,” she said.

Treasury has sent a memo to federal agencies asking if they can delay making certain payments to conserve cash, a source familiar with the matter told CNN. The Washington Post first reported on the memo.

Some House Republicans, however, don’t think that the true deadline is on June 1. They argue that Yellen should be more “transparent” about her forecasts.

“It looks like they're hedging now and opening up the door to move that date back,” House Majority Leader Steve Scalise said Tuesday.

Multiple analyses have estimated that the X-date will probably occur in early June, but not necessarily June 1. The Bipartisan Policy Center on Tuesday projected that Treasury will most likely lack the cash to meet all of its obligations sometime between early June and early August, with an “elevated risk” between June 2 and June 13.

If Treasury can continue paying the bills into the middle of next month, then it’s likely the government won’t default until later in the summer. The agency will get another injection of funds from second quarter estimated tax payments, which are due June 15, and from $145 billion in an “extraordinary measure” that becomes available at the end of that month.

CNN’s Alayna Treene and Kristin Wilson contributed to this report.

White House negotiators are “absolutely empowered” to negotiate on behalf of President Joe Biden in the debt limit discussions, press secretary Karine Jean-Pierre said Wednesday, pushing back against reports that the negotiators have been hamstrung by the White House.

“They’re absolutely empowered – this is a team that the president selected himself, these are long-term advisers, long-time advisers, I should say, to the president,” Jean-Pierre said.

Pressed in a follow-up question by CNN’s Phil Mattingly, Jean-Pierre declined to weigh in on what the White House thinks of lead House GOP negotiators Patrick McHenry and Garret Graves.

Discussions between lead negotiators are still underway at the Eisenhower Executive Office Building, Jean-Pierre added.

Even though time is running out to get a debt ceiling deal through Congress, one of the key players that will decide the fate of America’s credit rating is convinced disaster will be averted.

Even though there are just eight days to go before the government could run out of cash, Foster said Moody’s is confident the federal government will not suffer a first-ever default.

“If we were less confident, we would change our outlook to negative,” Foster said.

The coming days and weeks could test that confidence.

House Republicans and the White House are, so far, struggling to find a compromise on how to raise the debt ceiling. Cash levels at the US Treasury are dwindling and the accounting gimmicks officials are using to avoid default won’t last much longer.

Wall Street is even starting to wake up to the debt ceiling dangers ahead, with the stock market finally buckling a bit following days of calm.

Asked why he is confident the United States won’t default, Foster pointed to historical precedent, adding, “There has never been a default.”

The Moody’s executive also referenced comments from Republican and Democrat leaders alike about the importance of America paying its bills.

However, given the tight timetable between now and the June 1 deadline set by the Treasury Department, Moody’s isn’t ruling out the idea that the federal government could be forced to delay payments on other items beyond payments to bondholders.

A potential US default was a big concern for Federal Reserve officials when they voted to raise interest rates earlier this month, according to minutes from that meeting released on Wednesday.

Officials raised the central bank's benchmark lending rate by a quarter point to 5-5.25% in the first week of May. Among the many developments officials discussed, the economic fallout of a US default was one of them, including how the central bank would respond.

The clock is ticking down to a US default, but it’s not entirely clear when the US will officially run out of cash. It’s also not clear what a potential deal to avert a first-ever default will look like.

The day the US government will run out of cash is actually a moving target.

The US actually exceeded its borrowing authority back in January, but Treasury Secretary Janet Yellen authorized “extraordinary measures” – essentially moving money around – to give lawmakers time to act.

She has said those extraordinary measures will be exhausted as soon as June 1, but third-party estimates suggest it could end up taking weeks or even months longer.

The government takes in and spends money every day. It also takes cash from public debt it has sold to cover expenses.

The Treasury Department publishes a daily balance sheet. Last Thursday it showed an operating cash balance of $57 billion, including billions in deposits – everything from income taxes and Medicare premiums to the foreign military sales program – and $205 billion in cash from debt.

CNN’s Tami Luhby writes that if the US can limp to the middle of June, an expected infusion of estimated tax payments could forestall the so-called X date until later in the summer. Treasury officials might not even know until a day or two before the X date occurs.

You can read more about the US debt drama here.

President Joe Biden and House Republicans have a short amount of time to prevent the US from defaulting on its debt, which would impact millions of Americans and unleash economic and fiscal chaos here and around the world.

Treasury Secretary Janet Yellen has warned the government may not be able to pay all of its bills in full and on time as soon as June 1.

Here are just three ways that Americans could be affected by debt default:

Social Security payments: Payments to about 66 million retirees, disabled workers and others receive monthly Social Security benefits could be delayed in a debt default scenario, though it’s possible Treasury could continue making on-time payments because of the entitlement program’s trust fund, said Shai Akabas, director of economic policy at the Bipartisan Policy Center.

Almost two-thirds of beneficiaries rely on Social Security for half of their income, and for 40% of recipients, the payments constitute at least 90% of their income, according to the National Committee to Preserve Social Security and Medicare.

Other government payments could also be affected, including funding for food stamps; federal grants to states and municipalities for Medicaid, highways, education and other programs.

Federal employees and veterans benefits: More than 2 million federal civilian workers and around 1.4 million active-duty military members could see their paychecks delayed. Federal government contractors could also see a lag in payments, which could affect their ability to compensate their workers.

Also, certain veterans benefits, including disability payments and pensions for some low-income veterans and their surviving families, could be affected.

The economy: A debt default could trigger an economic downturn, which would prompt a spike in unemployment. It would come at a particularly fragile time — when the nation is already dealing with rising interest rates and stubbornly high inflation.

How much damage would be done would depend on how long the crisis continues. If the default lasts for about a week, then close to 1 million jobs would be lost, including in the financial sector, which would be hard hit by the stock market declines. Also, the unemployment rate would jump to about 5% and the economy would contract by nearly half a percent, according to Moody’s.

“It would be a body blow to the economy, and it would be a manufactured crisis,” said Bernard Yaros, an economist at Moody’s.

US stocks were lower in midday trading on Wednesday as concerns mounted on Wall Street over the stalled debt ceiling negotiations.

Until today, investors had remained largely optimistic that the debt ceiling would be lifted before the so-called X-date, Treasury Secretary Janet Yellen’s June 1 deadline for the United States to raise the debt ceiling or risk defaulting on its obligations.

But with just over a week left until that deadline, investors appear to be waking up to the reality that a deal may not be made.

Defaulting on the US debt would be “potentially catastrophic,” JPMorgan Chase CEO Jamie Dimon said earlier this month. “The closer you get to it, you will have panic. Markets will get volatile, maybe the stock market will go down, the Treasury markets will have their own problems,” he said. “This is not good.”

Wall Street’s key measure of volatility, the VIX, spiked by more than 10% on Wednesday.

US Treasury yields also rose Wednesday across the curve as investors weighed the risk of a default.

The Dow was down 283 points, or 0.9%, on Wednesday afternoon.

The S&P 500 also fell by 0.9%.

The Nasdaq Composite was 1% lower.

House Speaker Kevin McCarthy reiterated Wednesday morning that the two sides are still far apart on debt ceiling negotiations.

He said the only concessions Republicans are offering are spending caps and work requirements — which Democrats already rejected. 

Pressed on why additional concessions aren't being offered to Democrats on the debt limit, McCarthy said: “We've offered a lot of concessions. The cap on the spending is a Democrat idea. The work requirement was a Democrat idea."

He went on to say that he believed Democrats are being influenced by "extreme" members of their party.

"I can't help it if the Democrats would become so extreme, and now it's a party of Bernie Sanders within the party where Joe Biden was elected. Joe Biden is the President of the United States. He is the head Democrat. But if AOC (Rep. Alexandria Ocasio-Cortez) and Bernie Sanders is going to run their party, that's not my fault. I'm not even sure Bernie Sanders is a registered Democrat,” he added.  

The speaker's team is on their way to the White House to meet with negotiators.

House Speaker Kevin McCarthy was asked if Republicans should take the blame if the US defaults on its debts due to no deal being made. He said, "First of all, I don't think there will be a default."

On who deserves blame, McCarthy said that should not land with the GOP because "we're the only ones who acted."

Some context: McCarthy met with President Joe Biden at the White House on Monday, a meeting the speaker and the president both said was “productive,” but that did not yield a breakthrough in negotiations or end in a deal.