Treasury Secretary Janet Yellen announced Friday that the United States will hit its borrowing limit in mid- to late-January, setting the stage for a major fiscal challenge for President-elect Donald Trump in his first months in office.
Yellen’s letter to congressional leaders revealed that the Treasury Department expects to reach the debt limit between January 14 and January 23, triggering the need for extraordinary measures to prevent default.
Debt Ceiling Background
The current debt ceiling was suspended in June 2023 under a bipartisan agreement brokered by then-House Speaker Kevin McCarthy and President Joe Biden. That suspension expires on January 2, 2024, reinstating the limit on the Treasury’s ability to issue new debt to meet the government’s financial obligations.
Yellen noted that Treasury will have some flexibility due to the timing of debt payments associated with a Medicare trust fund, but this leeway will only extend to mid-January. At that point, the department will rely on accounting maneuvers to avert a government default.
Urgent Call to Action
“I respectfully urge Congress to act to protect the full faith and credit of the United States,” Yellen stated, emphasizing the urgency of the matter.
While Yellen did not specify how long the extraordinary measures could stave off default, prior instances suggest the government could continue operating for several months, with some estimates projecting the so-called “X-date” in the summer of 2024.
Trump’s First Fiscal Test
The debt ceiling adds another immediate challenge for President-elect Trump, who takes office in January. Last week, Trump unsuccessfully pushed Congress to address the issue before his inauguration, urging lawmakers to either raise the debt ceiling or eliminate it entirely under Biden’s administration.
Trump called on House Republicans to include a debt ceiling extension in a stopgap government spending bill. However, the effort failed as 38 GOP lawmakers, mainly fiscal conservatives, joined most Democrats to block the proposal.
Partisan Divides and Economic Risks
The debt ceiling fight underscores deep partisan divides. Hardline Republicans have long opposed raising the borrowing limit without significant spending cuts, while Democrats argue that failure to act could jeopardize the nation’s economic stability.
Economists warn that a prolonged standoff could harm the U.S. economy, leading to higher borrowing costs, market instability, and the potential loss of the government’s AAA credit rating.
What’s Next?
With the clock ticking, the debt ceiling battle will likely dominate Trump’s early days in office. Whether his administration can navigate the sharp political divides remains uncertain, but the stakes couldn’t be higher: protecting the full faith and credit of the United States.
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