The Congressional Budget Office said on Friday that there was a “significant risk” that the federal government could run out of cash sometime in the first two weeks of June, setting the United States up for a default.
The warning came as the White House and congressional leaders spent the week in negotiations over how to raise the $31.4 trillion borrowing cap. The Treasury Department has been using accounting maneuvers known as extraordinary measures to keep paying the country’s bills without breaching that debt ceiling, which was officially reached on Jan. 19. But the department has said those tools could be exhausted as soon as June 1.
The nonpartisan budget office outlined the fiscal strain facing the government as the legislative standoff continues. It also noted that the timing and revenue coming into the government, as well as its expenditures, were hard to predict.
“If the debt limit is not raised or suspended before the Treasury’s cash and extraordinary measures are exhausted, the government will have to delay making payments for some activities, default on its debt obligations, or both,” the Congressional Budget Office said in a report released on Friday.
It predicted that a default would lead to “distress in credit markets, disruptions in economic activity and rapid increases in borrowing rates for the Treasury.”
Treasury Secretary Janet L. Yellen warned this week that the consequences of a default would be dire.
“A default would threaten the gains that we’ve worked so hard to make over the past few years in our pandemic recovery,” she said at a news conference in Japan on Thursday before a gathering of Group of 7 finance ministers. “And it would spark a global downturn that would set us back much further.”
The day the United States runs out of cash — known as the X-date — could come later this summer. The budget office said that if the Treasury Department had sufficient funds to make it through June 15, an influx of quarterly tax receipts and additional extraordinary measures at its disposal would most likely allow the government to keep paying its bills through “at least the end of July.”
President Biden and the four top congressional leaders, including Speaker Kevin McCarthy, were originally scheduled to meet again on Friday to discuss the debt limit after an initial face-to-face session on Tuesday produced no agreement. The second meeting is now expected to take place next week, before Mr. Biden departs on Wednesday for Japan to attend the G7 leaders’ meeting. In the interim, staff from both sides are continuing to try to reach some type of deal to avert a default.
While the decision to delay the meeting was viewed as a positive development that could allow both sides to reach consensus, it remains unclear whether an agreement can be reached in time. Mr. McCarthy has insisted on deep spending cuts and a rollback of Mr. Biden’s clean energy agenda as a prerequisite to raising the debt limit. The president has insisted that Republicans raise the borrowing cap, arguing that it simply allows the United States to pay bills that Congress has already approved.
The nation’s long-term fiscal outlook continues to be problematic and could only harden the Republican position that the government must rein in spending. In a separate report released on Friday, the Congressional Budget Office said it projected a federal budget deficit of $1.5 trillion this year — slightly higher than its forecast in February. Annual deficits are projected to nearly double over the next decade, totaling more than $20 trillion through 2033.