Treasury Secretary Janet Yellen told Congress that the signing of the Infrastructure Investment and Jobs Act means that lawmakers should raise the debt ceiling “as soon as possible.”
In 2019, Congress suspended the debt ceiling — which prevents the federal government from assuming a certain level of national debt — until August 2021. To prevent a potential default on federal obligations, Senate Minority Leader Mitch McConnell (R-KY) gave Democrats a short-term deal in October to suspend the debt ceiling — which is designed to make Democrats enact a permanent solution on their own by the end of the year.
Yellen warned House Speaker Nancy Pelosi (D-CA) that the passage of the $1.2 trillion bipartisan infrastructure bill — signed by President Biden on Monday — demands that lawmakers act swiftly on the debt limit.
“Yesterday, the President signed the Infrastructure Investment and Jobs Act, which appropriates $118 billion for the Highway Trust Fund,” her letter explained. “These funds must be transferred into the Highway Trust Fund within one month after the enactment of the legislation, and the transfer will be completed on December 15. Promptly thereafter, the funds will be invested in nonmarketable Treasury securities subject to the debt limit.”
“While I have a high degree of confidence that Treasury will be able to finance the U.S. government through December 15 and complete the Highway Trust Fund investment, there are scenarios in which Treasury would be left with insufficient remaining resources to continue to finance the operations of the U.S. government beyond this date,” she continued. “As the federal government’s cash flow is subject to unavoidable variability, I will continue to update Congress as more information becomes available.”
“To ensure the full faith and credit of the United States, it is critical that Congress raise or suspend the debt limit as soon as possible.”
In a Wall Street Journal op-ed published in September, Yellen explained that any failure to raise or suspend the debt ceiling could plunge the United States into a financial crisis.
“In a matter of days, millions of Americans could be strapped for cash,” Yellen wrote. “We could see indefinite delays in critical payments. Nearly 50 million seniors could stop receiving Social Security checks for a time. Troops could go unpaid. Millions of families who rely on the monthly child tax credit could see delays. America, in short, would default on its obligations.”
“The U.S. has never defaulted. Not once. Doing so would likely precipitate a historic financial crisis that would compound the damage of the continuing public health emergency. Default could trigger a spike in interest rates, a steep drop in stock prices and other financial turmoil.”
“Our current economic recovery would reverse into recession, with billions of dollars of growth and millions of jobs lost.”
Earlier this year, Fitch Ratings — one of the “Big Three” rating agencies on Wall Street — issued a “Negative Outlook” on the United States’ creditworthiness over ballooning federal debt. Though the United States kept its “AAA” rating, Fitch stated that the outlook “reflects ongoing risks to the public finances and debt trajectory.”