July 13, 2024

U.S. Treasury Secretary Janet Yellen holds a information convention within the Money Room on the Treasury Division on April 11, 2023 in Washington, DC.

Chip Somodevilla | Getty Photos

WASHINGTON — Failure to boost the U.S. debt ceiling would trigger an “financial disaster,” Treasury Secretary Janet Yellen mentioned Monday on CNBC’s Closing Bell: Extra time.

Yellen’s feedback got here as a political stalemate over elevating the debt restrict was forcing the Treasury Division dangerously near a worst-case state of affairs: a possible U.S. debt default. This may happen if Treasury had been to exhaust the extraordinary measures it carried out earlier this yr to satisfy its obligations after the U.S. reached its statutory debt restrict of $31.4 trillion.

So as to keep away from a default on the nation’s debt, Congress should vote to both increase or droop the debt restrict earlier than Treasury runs out of emergency funding. However with solely eight days left this month throughout which each the Home and the Senate are scheduled to be in session on the similar time, time is working out to succeed in a deal.

“In the event that they fail to do it, we can have an financial and monetary disaster that will probably be of our personal making, and there’s no motion that president Biden and U.S. Treasury can take to stop that disaster,” Yellen mentioned Sunday on ABC Information’ This Week.

Treasury and the Congressional Price range Workplace each launched new experiences final week predicting that these measures may very well be exhausted as early as June 1, which was before Wall Avenue or the White Home had been anticipating. The brand new, earlier date was the results of decrease than anticipated federal tax revenues in April.

On Tuesday, Biden will host a excessive stakes assembly on the White Home with the 4 prime leaders of Congress: Home Speaker Kevin McCarthy, R-Calif., Home Minority Chief Hakeem Jeffries, D-N.Y., Senate Majority Chief Chuck Schumer, D-N.Y., and Senate Minority Chief Mitch McConnell, R-Ky.

Learn extra of CNBC’s politics protection:

The White Home says the assembly won’t embrace negotiations on elevating the debt restrict, which Biden says Republicans should agree to boost with out preconditions. To this point, Republicans have refused to approve a debt ceiling hike except it’s accompanied by sweeping cuts to federal spending.

Economists on each side of the aisle agree that even a really transient default would ship shockwaves via equities markets and ship rates of interest hovering.

“Brief-term funding markets, that are important to the stream of credit score that helps finance the financial system’s day-to-day actions, possible would shut down as nicely” within the occasion of a default, mentioned Mark Zandi, chief economist of Moody’s Analytics, at a Senate listening to in March.

The looming debt ceiling disaster has additionally pressured Yellen to “compress” her journey to Japan this week. She is scheduled to attend a gathering of G-7 finance ministers and central bankers.

There, Yellen’s core priorities will probably be “strengthening the worldwide macroeconomy, redoubling our dedication to Ukraine because it defends itself in opposition to Russia’s barbaric struggle and third, our work to bolster financial resilience and safety,” the Treasury Division mentioned in an announcement Friday.

Behind the scenes, Yellen can also be prone to face questions from her G-7 counterparts concerning the debt ceiling debate and the prospect of a U.S. default.

The White Home warned final week that alongside large harm to the home financial system, a default would additionally weaken the US overseas. It may particularly issues amongst world traders concerning the long-term stability of the U.S. greenback.