Treasury Secretary Janet Yellen warned that the United States would fall into a recession if Congress doesn’t raise or suspend the federal debt limit before Oct. 18.
“It would be catastrophic to not pay the government’s bills,” Yellen, who has issued several warnings about exceeding the debt ceiling to members of Congress in recent weeks, said in a Tuesday interview with CNBC.
“I fully expect it would cause a recession as well,” she added, saying she believes Oct. 18, which is just under two weeks away, is the deadline for a U.S. default.
After Congress failed to pass a bill to extend the suspension of the debt limit by the end of July, Yellen has for weeks issued warnings to House Speaker Nancy Pelosi (D-Calif.), Senate Majority Leader Chuck Schumer (D-N.Y.), and Senate Minority Leader Mitch McConnell (R-Ky.) that the United States won’t be able to honor its debts by sometime in October. Lawmakers have to either raise or suspend the debt limit or risk a default, which would be the first in U.S. history.
Just days after Congress passed a continuing resolution to avert a partial government shutdown, analysts have warned that the looming default could wreak havoc on the economy by a spike in interest rates and would imperil faith in the federal government’s ability to honor future obligations. Certain programs and services would also be suspended, including some Social Security payments to older Americans.
“U.S. Treasury securities have long been viewed as the safest asset on the planet,” Yellen said Tuesday. “That partly accounts for the reserve status of the dollar. And placing that in question by failing to pay any of our bills that come due would really be a catastrophic outcome.”
Other than Yellen, the White House circulated a letter late last month warning that millions of jobs could be lost due to a U.S. default and similarly warned of a possible recession.
President Joe Biden on Monday urged Congress to raise the debt limit this week, blaming McConnell and Republicans for not supporting Democrat-backed legislation. McConnell, however, has said that Democrats have majorities in both the House and Senate, and have the ability to raise the limit themselves while arguing that both Biden and Democrat leaders want to raise the limit to try and pass multi-trillion-dollar spending packages.
“Since mid-July, Republicans have clearly stated that Democrats will need to raise the debt limit on their own,” McConnell wrote to Biden in a letter dated Monday. “Bipartisanship is not a light switch that Speaker Pelosi and Leader Schumer may flip on to borrow money and flip off to spend it.”
Republicans, he added, “have simply warned that since your party wishes to govern alone, it must handle the debt limit alone as well” before making reference to the mammoth $3.5 trillion spending package that some Democrats are seeking to pass in the Senate via reconciliation, a process that would circumvent Republican support. Some moderate Democrats oppose the measure.
In remarks to CNN on Tuesday, Sen. Joe Manchin (D-W.Va.) said that Congress “can prevent default, we really can prevent it. And there’s a way to do that, and there’s a couple other tools we have that we can use.”
“But we cannot—and I want people to know—we will not let this country default,” he said.