New estimate US could face default on debt by early June

The US could face an unprecedented default on its obligations as soon as early June if Congress does not act to lift the debt limit, a Washington think-tank said on Wednesday.

The Bipartisan Policy Centre, which forecasts the approximate “X-date” when the government will no longer be able to meet its financial obligations on time, said the US will reach its statutory debt limit as soon as the summer or early fall of 2023. That inches up from the centre’s previous prediction in June 2022 that the “extraordinary measures” that US Treasury uses to pay the government’s bills would not be exhausted before the third quarter of 2023.

Previewing the data for reporters on a morning call, Shai Akabas, the centre’s director of economic policy, said the new projections reflect “considerable uncertainty in our nation’s current economic outlook.”

“Policymakers have an opportunity now to inject certainty into the US and global economy by beginning, in earnest, bipartisan negotiations around our nation’s fiscal health and taking action to uphold the full faith and credit of the United States well before the X-Date,” he said.

Akabas said the December 2022 big spending bill, an extended pause on student loan repayments and high interest rates resulting in higher costs to service US debt have contributed to moving up the X-date.

Treasury Secretary Janet Yellen notified Congress in January that her agency was resorting to “extraordinary measures” to avoid default, and that “it is unlikely that cash and extraordinary measures will be exhausted before early June.”

Yellen said her actions will buy time until Congress can pass legislation that will either raise the nation’s $31.4 trillion borrowing authority or suspend the limit for a period of time. But she said it’s “critical that Congress act in a timely manner.”

“Failure on the part of the United States to meet any obligation, whether its debt holders, to members of our military or to Social Security recipients, is effectively a default,” she told reporters in January.