‘Significant risk’ US defaults on debt in ‘first two weeks’ of June: CBO

The Congressional Budget Office (CBO) issued a report Friday updating its projected timeline for when the nation risks defaulting on its debt, estimating the federal government’s deadline could now be the “first two weeks of June.”

The nonpartisan budget scorekeeper warned Friday morning that there is greater risk the Treasury Department is on track to exhausting the “extraordinary measures” it’s been taking since January to temporarily stave off a federal default, if Congress fails to raise or suspend the debt ceiling in time.

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“The extent to which the Treasury will be able to fund the government’s ongoing operations will remain uncertain throughout May, even if the Treasury ultimately runs out of funds in early June,” the report said. The report chalked up that uncertainty largely to the “timing and amount of revenue collections and outlays over the intervening weeks could differ from CBO’s projections.”

In the event the Treasury Department’s cash and extraordinary measures are able to buy the government until June 15, the CBO estimates that quarterly tax receipts expected around then, along with additional emergency measures, could “allow the government to continue financing operations through at least the end of July.” 

The CBO previously estimated in February that the federal government could default sometime between July and September. But CBO director Phillip Swagel also cautioned then that the timeline could move back, depending on revenue levels during tax season. The agency said in an interim update last week that there was more risk of a national default in early June as tax season wound down.

The report is the latest warning to Congress that it faces a more serious time crunch to raise the debt ceiling than previously expected.

Tax receipts came in lower than expected last month, which has sapped money the federal government could have used to stave off a default. The Treasury Department warned last week the US could default as soon as June 1.

Economists have warned a government default could produce devastating effects for the nation’s economy, as well as global financial markets. 

“If Congress fails to do that, it really impairs our credit rating. We have to default on some obligation, whether it’s Treasuries or payments to Social Security recipients,” Treasury Department Secretary Janet Yellen warned in an interview with Bloomberg Television on Friday. 

“That’s something America hasn’t done since 1789, and we shouldn’t start now,” she added.

Congress last raised the debt limit to roughly $31.4 trillion in late 2021, but not without months of drama between both sides of the aisle, as Republicans tried to use the task as a leverage point to secure concessions from Democrats, who instead pushed for a “clean” increase with no conditions. 

Congress finds itself in similar terrain yet again, as a GOP-led House vows not to raise the debt ceiling unless Democrats agree to significant spending cuts.

Earlier this week, President Biden and Speaker Kevin McCarthy (R-Calif.) sat down with other congressional leaders to discuss a path forward on the debt limit in an attempt to break the months-long stalemate.

While leaders signaled no major movement between both sides after the meeting, they said discussions will continue between staff. A second meeting was planned for Friday before being postponed, with a White House official saying Thursday that “staff will continue working and all the principals agreed to meet early next week.”

Updated at 11:48 a.m.