WASHINGTON, D.C. — U.S. Treasury Secretary Janet Yellen warned lawmakers Tuesday that Congress must address the looming debt ceiling before mid-October or risk defaulting on the nation's debt.
In a letter sent to House Speaker Nancy Pelosi, Yellen wrote that the Treasury Department will likely exhaust its “extraordinary measures” if Congress has not acted to raise or suspend the debt limit by Oct. 18.
“At that point, we expect Treasury would be left with very limited resources that would be depleted quickly. It is uncertain whether we could continue to meet all the nation’s commitments after that date,” wrote Yellen.
The secretary added that the Oct. 18 deadline is the department’s best estimate and the federal government’s cash flows are subject to variability, meaning the money could last longer or shorter.
“This uncertainty underscores the critical importance of not waiting to raise or suspend the debt limit. The full faith and credit of the United States should not be put at risk,” she wrote.
Yellen warned that waiting until the last minute to address the debt ceiling can cause harm to business and consumer confidence, raise borrowing costs for taxpayers, and negatively impact the credit rating of the U.S. for years to come.
“Failure to act promptly could also result in substantial disruptions to financial markets, as heightened uncertainty can exacerbate volatility and erode investor confidence,” she wrote.
The U.S. has never defaulted on its debt before and economists tell CNBC that such a default would bring about financial calamity that could trigger a broad market sell-off and an economic downturn amid a spike in interest rates.
Yellen’s warning comes a day after Senate Republicans blocked a House-passed bill that would have funded the government and suspended the debt limit to allow continued borrowing to pay off the nation’s bills.
The Associated Press reports that Senate Minority Leader Mitch McConnell wants to force Democrats to split the legislation in two and vote on the politically uncomfortable debt ceiling vote on their own.