Janet Yellen, US Treasury secretary, speaks during the Independent Community Bankers Of America (ICBA) Capital Summit in Washington, DC, US, on Tuesday, May 16, 2023.
Nathan Howard | Bloomberg | Getty Images
Treasury Secretary Janet Yellen said Sunday that “hard choices” will need to be made about which bills will go unpaid if the debt ceiling is not raised.
Yellen reaffirmed her warning that the United States could default on its debt as early as June 1, which she has said could cause widespread “economic chaos.” There will be no good outcomes if Congress fails to take action, she said.
“We’re focused on raising the debt ceiling, and there will be hard choices if that doesn’t occur,” she told NBC’s “Meet the Press.” “There can be no acceptable outcomes if the debt ceiling isn’t raised, regardless of what decisions we make.”
Lifting the debt ceiling is necessary for the government to cover spending commitments already approved by Congress and the president in order to prevent default. Raising the debt ceiling does not authorize new spending, but House Republicans have said they will not lift the limit if Biden and lawmakers do not agree to future spending cuts.
As a result, the on-again, off-again deliberations on Capitol Hill have been tense.
President Joe Biden said Sunday that Republicans “need to move from their extreme position” during a press conference ahead of his departure from the Group of Seven Summit in Japan. After negotiations stalled late Saturday, Biden said he planned to call House Speaker Kevin McCarthy, R-Calif., on his way back to Washington.
“It’s time for Republicans to accept that there is no bipartisan deal to be made solely, solely, on their partisan terms,” Biden said.
McCarthy told reporters on Sunday after arriving at the Capitol that he planned to speak to Biden “in the next hour,” adding that he is glad the president is returning to the U.S.
“I think he’s got to get away from the socialist wing of the Democratic party and represent America. And that means both sides have to have compromise,” McCarthy said. “I’ve been there the entire time.”
At the Independent Community Bankers of America Capital Summit Tuesday, Yellen said the White House Council of Economic Advisers found that a default could lead to an economic downturn as bad as the Great Recession, with 8 million Americans losing their jobs and the stock market’s value falling by about 45%.
She also noted a Moody’s Analytics report which found similar numbers with more than 7 million Americans out of work and $10 trillion in household wealth evaporated. Yellen also warned that a debt ceiling breach could affect essential government services.
Biden said Sunday he thinks an agreement can be reached with Republicans, but that it is not certain.
“I can’t guarantee that they wouldn’t force a default by doing something outrageous,” he said.
U.S. House Speaker Kevin McCarthy (R-CA) speaks to reporters with U.S. Senate Republican Minority Leader Mitch McConnell (R-KY) at his side following debt limit talks at the White House in Washington, U.S., May 9, 2023.
Kevin Lamarque | Reuters
The on-again, off-again deliberations on Capitol Hill surrounding the debt ceiling are back off-again, as House Speaker Kevin McCarthy told reporters on Saturday Republicans will only continue negotiations when President Joe Biden returns from the Group of Seven Summit in Japan.
“Unfortunately, the White House moved backwards,” McCarthy said about the current deliberations surrounding the debt ceiling. “I don’t think we’re going to be able to move forward until the president can get back in the country,” he added.
related investing news
On Saturday evening, the Biden administration countered that it was the Republicans who on Friday made an offer on the debt ceiling that was “a big step back,” asserting that the proposal contained “extreme partisan demands that could never pass both Houses of Congress.”
“It is only a Republican leadership beholden to its MAGA wing — not the President or Democratic leadership — who are threatening to put our nation into default for the first time in our history unless extreme partisan demands are met,” according to a statement by Biden press secretary Karine Jean-Pierre.
Biden is scheduled to return to Washington, D.C., from the G-7 summit on Sunday. The president said at a press conference from the summit that he is “not at all” concerned about the negotiations and believes “we’ll be able to avoid a default and we’ll get something decent done.”
McCarthy’s revelation that the talks are on pause again, at least for now, is the latest hurdle facing the debate in Congress on what to do with the pending debt limit. Treasury Secretary Janet Yellen pegged June 1 as the earliest date on which the United States could run out of money to pay debts the government has already incurred.
Any deal to raise or suspend the debt limit will need to pass in both the GOP-led House and the Democratic-controlled Senate, and key lawmakers in both parties have acknowledged that the eventual compromise bill could be unacceptable to hardliners.
The high-stakes talks over raising the debt limit resumed in the Capitol on Friday evening, hours after they were paused at midday when Republican negotiators walked out of the room, blaming the White House for holding up discussions.
The US Treasury Department building is seen in Washington, DC, January 19, 2023.
Saul Loeb | Afp | Getty Images
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
Progress on U.S. debt ceiling talks and a sign of health at one regional bank gave markets the confidence to rally Wednesday.
Top U.S. leaders said the country will avoid a debt crisis. “I think at the end of the day we do not have a debt default,” House Speaker Kevin McCarthy told CNBC. President Joe Biden echoed that sentiment in remarks from the White House. “We’re going to come together because these is no alternative,” Biden said.
U.S. markets rose Wednesday as investors hoped U.S. lawmakers manage to reach a deal on the country’s debt ceiling. Asia-Pacific stocks traded higher Thursday on the back of that optimism. Japan’s Topix Index rose 1.1%, its third straight day of increase, as Japan’s trade deficit narrowed by almost half in April.
Microsoft CEO Satya Nadella told CNBC’s Andrew Ross Sorkin in a taped interview that society needs to come together to “mitigate the dangers” of artificial intelligence. But Nadella was also optimistic about AI’s impact: He thinks it’ll create new jobs and improve education.
PRO Traders expect the Federal Reserve to keep interest rates unchanged when it meets later in June. However, the central bank could enact a “substitute” hike that would keep monetary policy tight, according to Evercore ISI.
Progress on U.S. debt ceiling talks and a sign of health at one regional bank gave markets the confidence to rally Wednesday.
U.S. leaders from both sides of the political spectrum expressed hope that the country will avert a sovereign debt crisis, which could come in as little as two weeks, if U.S. Treasury Secretary Janet Yellen’s warning of a June 1 deadline comes true. Though neither Biden nor McCarthy offered concrete details on a deal, their comments were markedly more positive than those on Monday, when McCarthy told NBC News both sides are still “far apart.”
Adding to yesterday’s positive sentiment, regional bank Western Alliance reported that customer deposits have grown by more than $2 billion throughout the current quarter. Analysts and investors cheered the news. Shares of the bank jumped 10.2% and helped to lift the sector. PacWest, another regional bank, surged 21.7%, while the broader SPDR S&P Regional Banking ETF (KRE) rose 7.4%.
Technology stocks rallied yesterday, possibly because of diminishing fears of a debt crisis and positive sentiment from Tesla, which climbed 4.4% after the company’s shareholder meeting. The Technology Select Sector SPDR Fund (XLK) rose 1.2%, hitting a 52-week high for the third straight day.
Major stock indexes benefited from those rises. The Dow Jones Industrial Average closed 1.24% higher, the Nasdaq Composite added 1.28% and the S&P 500 rose 1.19%.
But the S&P might be too reliant on tech stocks, Mizuho warned. Simply put, without Big Tech stocks, the S&P 500 would be down for the year. That implies that if Big Tech experiences a downturn — as it did last year — then the S&P would tumble pretty quickly.
Still, the future is bright for now. Goldman Sachs’ Senior Strategist Ben Snider told CNBC AI could increase the profits of S&P companies by 30% — with technology sector being the immediate winner. Fears averted for another day.
Subscribe here to get this report sent directly to your inbox each morning before markets open.
The south facade of the White House in Washington DC, United States on April 21, 2022.
Yasin Ozturk | Anadolu Agency | Getty Images
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
Progress on U.S. debt ceiling talks and a sign of health at one regional bank gave markets the confidence to rally Wednesday.
Top U.S. leaders said the country will avoid a debt crisis. “I think at the end of the day we do not have a debt default,” House Speaker Kevin McCarthy told CNBC. President Joe Biden echoed that sentiment in remarks from the White House. “We’re going to come together because these is no alternative,” Biden said.
UBS expects to incur $17 billion in costs from its emergency takeover of Credit Suisse. However, UBS also expects to gain $34.8 billion from “negative goodwill,” which refers to the acquisition of assets at a price below what they’re worth.
Microsoft CEO Satya Nadella told CNBC’s Andrew Ross Sorkin in a taped interview that society needs to come together to “mitigate the dangers” of artificial intelligence. But Nadella was also optimistic about AI’s impact: He thinks it’ll create new jobs and improve education.
PRO Traders expect the Federal Reserve to keep interest rates unchanged when it meets later in June. However, the central bank could enact a “substitute” hike that would keep monetary policy tight, according to Evercore ISI.
Progress on U.S. debt ceiling talks and a sign of health at one regional bank gave markets the confidence to rally Wednesday.
U.S. leaders from both sides of the political spectrum expressed hope that the country will avert a sovereign debt crisis, which could come in as little as two weeks, if U.S. Treasury Secretary Janet Yellen’s warning of a June 1 deadline comes true. Though neither Biden nor McCarthy offered concrete details on a deal, their comments were markedly more positive than those on Monday, when McCarthy told NBC News both sides are still “far apart.”
Adding to yesterday’s positive sentiment, regional bank Western Alliance reported that customer deposits have grown by more than $2 billion throughout the current quarter. Analysts and investors cheered the news. Shares of the bank jumped 10.2% and helped to lift the sector. PacWest, another regional bank, surged 21.7%, while the broader SPDR S&P Regional Banking ETF (KRE) rose 7.4%.
Technology stocks rallied yesterday, possibly because of diminishing fears of a debt crisis and positive sentiment from Tesla, which climbed 4.4% after the company’s shareholder meeting. The Technology Select Sector SPDR Fund (XLK) rose 1.2%, hitting a 52-week high for the third straight day.
Major stock indexes benefited from those rises. The Dow Jones Industrial Average closed 1.24% higher, the Nasdaq Composite added 1.28% and the S&P 500 rose 1.19%.
But the S&P might be too reliant on tech stocks, Mizuho warned. Simply put, without Big Tech stocks, the S&P 500 would be down for the year. That implies that if Big Tech experiences a downturn — as it did last year — then the S&P would tumble pretty quickly.
As Mizuho’s note put it, “For our sake, hope [Big Tech companies] hold.”
Subscribe here to get this report sent directly to your inbox each morning before markets open.
HIROSHIMA, Japan — As the leaders of the Group of Seven gather for their annual summit in Japan this week, three world-changing conflicts — past, present and potential — will converge.
The atomic bomb that ended World War II destroyed much of the city of Hiroshima, where the leaders will meet. Today, Russia’s war in Ukraine is costing thousands of lives and billions of dollars as it drags on. And then there’s the risk of another horrifying catastrophe to come, as China threatens Taiwan.
And it’s over China where the alliance may come unstuck.
For hawks like the U.S. and Japan, the summit beginning Friday offers a timely opportunity to make the case to Europe’s leaders directly that it’s time to get off the fence when it comes to confronting China.
“This G7 Summit will be an appropriate venue to also discuss security issues and our security cooperation not only in Europe, but also in the Indo-Pacific region,” Noriyuki Shikata, cabinet secretary at the Japanese prime minister’s office, told POLITICO.
The U.S. is betting on at least the appearance of common ground with allies about the People’s Republic of China. Ahead of the summit, U.S. National Security Council spokesperson John Kirby told reporters: “You can expect to hear at the end of those discussions that all the G7 leaders are of a common mind about how to deal with the challenges that the PRC presents.”
But — beyond the inevitably bland diplomatic lines of a summit communique — getting consensus on meaningful security measures for the Indo-Pacific region will be hard, even in the symbolic setting of Hiroshima.
East Asia is again descending into a state of growing security risks and military imbalance, this time due to China’s aggressive moves against Taiwan and the South China Sea.
“There’s a feeling that there’s a little bit of a gap, perhaps, between where the Europeans are on some China issues and where the U.S. is,” said Zack Cooper, former aide to the U.S. National Security Council and a senior fellow at the American Enterprise Institute.
Chief among the points of tension is how far to go in trying to stop a potential Chinese invasion of Taiwan, which could trigger world war and wreck the global economy. The self-governing island, which Beijing claims as its own, provides most of the world’s advanced computer chips that are vital to the tech and defense industries. Not all European governments are convinced it’s something they need to prioritize. “It’s going to be a continuing challenge,” Cooper said.
Picking friends
NATO is set to extend its footprint in Asia and set up a new liaison office in Tokyo to better coordinate with regional partners, such as Australia, South Korea and New Zealand.
However, French President Emmanuel Macron has repeatedly called on NATO to focus only on the Euro-Atlantic theater, saying Asia — China — is not covered geographically. He also triggered an outcry with recent comments to POLITICO, suggesting that Taiwan’s security was not Europe’s fight, and that the EU should not automatically follow America’s lead.
Justin Trudeau comes to the G7 following months of intelligence leaks that have painted his government as weak on foreign interference | Yuchi Yamazaki/AFP via Getty Images
Macron’s stance sets France — which is the EU’s biggest military power — apart from the U.S. and Japan, and also from the U.K., where Prime Minister Rishi Sunak is expected to announce a new security deal with Japan during his visit.
“Ukraine today could be East Asia tomorrow,” Japanese Prime Minister Fumio Kishida said last year, not long after Russia’s full-scale invasion began. Last week, Japan’s Foreign Minister Yoshimasa Hayashi made an even more explicit warning in a speech made to his 27 EU counterparts in Sweden.
“China is continuing and intensifying its unilateral attempts to change the status quo by force in the East and South China Seas. China is also increasing its military activities around Taiwan,” Hayashi said. “In addition, China and Russia are strengthening their military collaboration, including joint flights of their bombers and joint naval exercises in the vicinity of Japan.”
The Chinese-Russian ties will be part of the G7 leaders’ discussions, according to two officials involved in the process, who spoke on condition of anonymity because summit preparations are not public. While the Chinese authorities stop short of openly arming Russia in its war against Ukraine, a long-term strategic partnership between Beijing and Moscow is unshakable for President Xi Jinping.
G7 countries such as the U.S. and Japan are expected to raise the need to sanction countries that work around Western trade restrictions on Russia, according to the officials. Chinese companies found to be selling dual use goods to Russia would be a top focus.
Bully tactics
China’s willingness to throw around its economic weight is one area where there’s likely to be more unity between G7 allies.
The need to fight back against economic coercion will take center stage at the summit. The EU, U.S., Canada and Japan are going to rally around calls to combat China’s use of its economic power to bully smaller economies that act against its political interests.
“The sense of urgency and unity is a force factor in and of itself. For example, never before has the G7 addressed economic coercion,” Rahm Emanuel, the U.S. ambassador to Japan, told POLITICO.
“When measured against the recent past, the G7 and EU are more strategically aligned in key economic and military matters,” added Emanuel, who served as chief of staff to former U.S. President Barack Obama.
When it comes to the European view, EU Commission President Ursula von der Leyen is clear that the bloc is “competing with China” and will need to up its game. “We will reduce strategic dependencies — we have learned the lessons of the last year,” she said in a press conference ahead of the trip.
Justin Trudeau, the Canadian prime minister, comes to the G7 following months of intelligence leaks that have painted his government as weak on foreign interference, specifically from China. He’ll be carrying Canada’s message that it can be a safe, non-authoritarian alternative to Russia and China for supplying critical minerals and energy, including nuclear power.
Despite the toughening rhetoric on China, what still unites the G7 countries is an eagerness not to shut the door on talks with Beijing.
US President Joe Biden arrives to attend the G7 Summit in Hiroshima on May 18, 2023 | Brendan Smialowski/AFP via Getty Images
The Biden administration has for months been seeking to secure a visit to China for top Cabinet members, such as Treasury Secretary Janet Yellen. Biden’s national security adviser, Jake Sullivan, held eight hours of talks with the Chinese Communist Party’s foreign policy chief, Wang Yi, this month.
Just before he left for Japan on Wednesday, U.S. President Joe Biden was asked whether his last-minute decision to truncate his trip abroad could be seen as “almost a win for China.” Instead of staying in the region for a summit of the Quad — Japan, India, the U.S. and Australia — Biden plans to return to Washington Sunday to deal with domestic issues.
The president downplayed the move as something China could use to its advantage, noting he will still meet with Quad nation leaders in Japan. “We get a chance to talk separately at the meeting,” he said
Then, Biden was asked whether he has plans to speak with the Chinese president soon.
“Whether it’s soon or not, we will be meeting,” he said, before leaving the room.
Cristina Gallardo in London and Zi-Ann Lum in Ottawa contributed reporting.
U.S. debt default would cause borrowing costs to jump.
getty
A default on the nation’s debt, if Congress is unable to raise the federal debt ceiling in coming weeks, would boost mortgage rates by at least two percentage points and cause a slump in home sales as costlier financing puts real estate beyond the reach of more Americans, according to Jeff Tucker, a Zillow senior economist.
While it’s still unlikely the federal government will fail to pay its bills, the chances have increased in recent weeks because of an ongoing stalemate in Congress, Moody’s Analytics said last week. The chance of a debt default now stands at 10%, up from a previous estimate of 5%, the research firm said.
“Any major disruption to the economy and debt markets will have major repercussions for the housing market, chilling sales and raising borrowing costs, just when the market was beginning to stabilize and recover from the major cooldown of late 2022,” said Zillow’s Tucker.
The average U.S. rate for a 30-year fixed home loan likely would rise to 8.4% in coming months, he said, from last week’s 6.35%, as measured by Freddie Mac. That increase in borrowing costs would cause home sales to slump by 23%, while the U.S. unemployment rate likely would balloon to 8.3% from last month’s 3.4% as the economy entered a recession, Tucker said.
It would be a “self-inflicted disaster,” Tucker said.
Jaret Seiberg, the housing policy analyst for Cowen Washington Research Group, views Tucker’s estimates as possibly too conservative.
“Our view is that the Zillow report may be a best-case scenario as our concern is that credit markets will freeze up if there is a default,” Seiberg said.
Comments made by former President Donald Trump during a CNN “Town Hall” last week increased the chances of a debt disaster, Seiberg said. Trump told CNN’s Kaitlan Collins a debt default “could be nothing” and might be just “a bad week or a bad day.”
That stands in stark contrast to remarks he made while he was in the White House. On July 19, 2019, Trump described the nation’s obligation to pay its bills as “a very, very sacred thing in our country” and added, “I can’t imagine anybody ever even thinking of using the debt ceiling as a negotiating wedge.”
With a razor-thin Republican majority in the House of Representatives, even a few hold-outs inspired by Trump’s remarks could doom a chance to come to an agreement about raising the debt cap, Seiberg said. Negotiations over the debt ceiling aren’t about how much to spend – they’re about paying bills already incurred.
“We continue to view a default as unlikely, but that is premised on our belief that politicians realize how dangerous a default would be for the economy,” Seiberg said. “The problem is that unlike in prior fights, not every political leader agrees, as we heard this week from former President Donald Trump. It is why we cannot rule out a default.”
While economists agree that a failure of the U.S. government to pay its bills would be a recession-inducing catastrophe, they don’t agree on the “X date,” meaning the day a default would begin. Treasury Secretary Janet Yellen puts the month as June, and the earliest potential day as June 1. The U.S. Treasury said in January it would use “extraordinary measures” to move money around to delay a default as long as possible.
Goldman Sachs economists estimate the U.S. “will likely exhaust its cash and borrowing capacity by late July.” Zillow puts the default date as “almost certainly by August, depending on the flow of income tax receipts this spring.”
“It is impossible to predict with certainty the exact date when Treasury will be unable to pay all of the government’s bills,” Yellen told the Independent Community Bankers of America on Tuesday. “Every single day that Congress does not act, we are experiencing increased economic costs that could slow down the U.S. economy.”
The mortgage market is already showing signs of investor fear. Last month, the spread between 30-year fixed mortgage rates and 10-year Treasury yields reached the widest in almost 40 years. When spreads are wide, the mortgage rates that track the 10-year Treasury yield are higher than they normally would be as investors demand a risk premium.
In May’s first week, the spread was 2.95 percentage points, close to the 3.07 in mid-March that marked the widest margin since 1987, and beating the 2.96 in late December 2008 that was the biggest spread of the Great Recession, comparing Freddie Mac’s weekly rate average with 10-year Treasury data from the Federal Reserve.
“We are already seeing the impacts of brinksmanship,” Yellen said. “The U.S. economy hangs in the balance.”
U.S. debt default would cause borrowing costs to jump.
getty
A default on the nation’s debt, if Congress is unable to raise the federal debt ceiling in coming weeks, would boost mortgage rates by at least two percentage points and cause a slump in home sales as costlier financing puts real estate beyond the reach of more Americans, according to Jeff Tucker, a Zillow senior economist.
While it’s still unlikely the federal government will fail to pay its bills, the chances have increased in recent weeks because of an ongoing stalemate in Congress, Moody’s Analytics said last week. The chance of a debt default now stands at 10%, up from a previous estimate of 5%, the research firm said.
“Any major disruption to the economy and debt markets will have major repercussions for the housing market, chilling sales and raising borrowing costs, just when the market was beginning to stabilize and recover from the major cooldown of late 2022,” said Zillow’s Tucker.
The average U.S. rate for a 30-year fixed home loan likely would rise to 8.4% in coming months, he said, from last week’s 6.35%, as measured by Freddie Mac. That increase in borrowing costs would cause home sales to slump by 23%, while the U.S. unemployment rate likely would balloon to 8.3% from last month’s 3.4% as the economy entered a recession, Tucker said.
It would be a “self-inflicted disaster,” Tucker said.
Jaret Seiberg, the housing policy analyst for Cowen Washington Research Group, views Tucker’s estimates as possibly too conservative.
“Our view is that the Zillow report may be a best-case scenario as our concern is that credit markets will freeze up if there is a default,” Seiberg said.
Comments made by former President Donald Trump during a CNN “Town Hall” last week increased the chances of a debt disaster, Seiberg said. Trump told CNN’s Kaitlan Collins a debt default “could be nothing” and might be just “a bad week or a bad day.”
That stands in stark contrast to remarks he made while he was in the White House. On July 19, 2019, Trump described the nation’s obligation to pay its bills as “a very, very sacred thing in our country” and added, “I can’t imagine anybody ever even thinking of using the debt ceiling as a negotiating wedge.”
With a razor-thin Republican majority in the House of Representatives, even a few hold-outs inspired by Trump’s remarks could doom a chance to come to an agreement about raising the debt cap, Seiberg said. Negotiations over the debt ceiling aren’t about how much to spend – they’re about paying bills already incurred.
“We continue to view a default as unlikely, but that is premised on our belief that politicians realize how dangerous a default would be for the economy,” Seiberg said. “The problem is that unlike in prior fights, not every political leader agrees, as we heard this week from former President Donald Trump. It is why we cannot rule out a default.”
While economists agree that a failure of the U.S. government to pay its bills would be a recession-inducing catastrophe, they don’t agree on the “X date,” meaning the day a default would begin. Treasury Secretary Janet Yellen puts the month as June, and the earliest potential day as June 1. The U.S. Treasury said in January it would use “extraordinary measures” to move money around to delay a default as long as possible.
Goldman Sachs economists estimate the U.S. “will likely exhaust its cash and borrowing capacity by late July.” Zillow puts the default date as “almost certainly by August, depending on the flow of income tax receipts this spring.”
“It is impossible to predict with certainty the exact date when Treasury will be unable to pay all of the government’s bills,” Yellen told the Independent Community Bankers of America on Tuesday. “Every single day that Congress does not act, we are experiencing increased economic costs that could slow down the U.S. economy.”
The mortgage market is already showing signs of investor fear. Last month, the spread between 30-year fixed mortgage rates and 10-year Treasury yields reached the widest in almost 40 years. When spreads are wide, the mortgage rates that track the 10-year Treasury yield are higher than they normally would be as investors demand a risk premium.
In May’s first week, the spread was 2.95 percentage points, close to the 3.07 in mid-March that marked the widest margin since 1987, and beating the 2.96 in late December 2008 that was the biggest spread of the Great Recession, comparing Freddie Mac’s weekly rate average with 10-year Treasury data from the Federal Reserve.
“We are already seeing the impacts of brinksmanship,” Yellen said. “The U.S. economy hangs in the balance.”
Treasury Secretary Janet Yellen updated her guidance Monday on when the United States could run out of money to pay the bills, warning congressional leaders that the nation could default as soon as June 1, the same date she projected in her letter to Congress two weeks ago.
White House and congressional leaders only recently started negotiating over the debt limit, but a deal has not yet been reached, and now that June 1 date is just two weeks away.
“[W]e still estimate that Treasury will likely no longer be able to satisfy all of the government’s obligations if Congress has not acted to raise or suspend the debt limit by early June, and potentially as early as June 1,” Yellen wrote.
She told lawmakers that there’s a large degree of uncertainty in her projection because the nation’s cash flow “could vary” from the estimates the department has made, based on receipts, outlays and debt. The Treasury Department has been using so-called extraordinary measures to help pay the bills since the U.S. hit the $31.4 trillion debt ceiling in January.
“The actual date Treasury exhausts extraordinary measures could be a number of days or weeks later than these estimates,” Yellen said, promising another update next week.
Even the threat of default is having an impact. Yellen noted Treasury has already seen borrowing costs “increase substantially” for securities maturing in early June.
President Biden and congressional leaders will meet again Tuesday to discuss the debt limit, a day before Mr. Biden is scheduled to leave for Japan. He spoke with them at the White House last week, but a second meeting on Friday was scrapped while talks continued at a staff level
House Speaker Kevin McCarthy signaled on Monday said so far, “nothing’s moved.” He also said negotiating parties must reach an agreement this weekend and said they were “nowhere near any of that.”
President Joe Biden, however, was more optimistic. “I really think there is a desire on their part as well as ours to reach an agreement, and I think we’ll be able to do it,” Biden said Sunday
Yellen, too, sounded hopeful in an interview with the Wall Street Journal posted Saturday, in which she said she’d been told that there were some areas of potential agreement. On “Face the Nation” on Sunday, White House Director of the National Economic Council Lael Brainard characterized the talks as serious and constructive.
Areas of compromise might include clawbacks of unused COVID funds, speeding up the permitting process and adding work requirements for some social programs. Raising the debt limit does not greenlight more spending but allows the government to pay the bills already incurred.
On Friday the Congressional Budget Office released its own analysis on the so-called X-date, similar to the Treasury timeline. The nonpartisan office warned there was a “significant risk” that the government would no longer be able to pay all its bills at some point in the first two weeks of June if Congress did not act.
U.S. Treasury Secretary Janet Yellen and Ukraine Prime Minister Denys Shmyhal speak to the press after holding a bilateral meeting at the U.S. Treasury Department Building in Washington, D.C., U.S. April 13, 2023.
Ken Cedeno | Reuters
WASHINGTON — Treasury Secretary Janet Yellen reaffirmed to Congress on Monday that the United States could default on its debt as early as June 1.
“With additional information now available, I am writing to note that we still estimate that Treasury will likely no longer be able to satisfy all of the government’s obligations if Congress has not acted to raise or suspend the debt limit by early June, and potentially as early as June 1,” she wrote.
The guidance came as the White House and congressional leaders prepared to meet Tuesday to continue negotiations over potential spending cuts in exchange for House passage of a debt ceiling hike. The Democratic majority Senate is expected to back whatever the White House negotiates with the GOP controlled House.
In recent days, conflicting reports have emerged about whether negotiators are making progress.
President Joe Biden sounded optimistic this past weekend about reaching a deal with Republicans to raise or suspend the debt limit in time to avoid economic fallout from even a potential U.S. debt default.
“I really think there’s a desire on their part, as well as ours, to reach an agreement, and I think we’ll be able to do it,” Biden told reporters Sunday in Delaware. He added, “I remain optimistic because I’m a congenital optimist.”
But that optimism wasn’t matched on the other side of the table.
“I still think we’re far apart,” McCarthy told NBC News on Monday outside the Capitol, adding, “It doesn’t seem to me yet that they want a deal.”
As she has in prior letters to Congress, Yellen underscored the urgency of the situation.
“Waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States,” she wrote.
“In fact, we have already seen Treasury’s borrowing costs increase substantially for securities maturing in early June,” said Yellen.
The Tuesday meeting between Biden, House Speaker Kevin McCarthy, R-Calif., Minority Leader Hakeem Jeffries, D-N.Y., Senate Majority Leader Chuck Schumer, D-N.Y., and Minority Leader Mitch McConnell, R-Ky was initially scheduled for Friday, but postponed until Tuesday to give aides more time to talk.
The new letter also came just days after guidance from the Congressional Budget Office that said tax revenues and emergency measures after June 15 “will probably allow the government to continue financing operations through at least the end of July.”
“If the debt limit remains unchanged, there is significant risk that at some point in the first two weeks of June, the government will no longer be able to pay all of its obligations,” said the CBO report.
People walk and ride bicycles past the US Capitol in Washington, DC, on May 11, 2023.
Jim Watson | AFP | Getty Images
WASHINGTON — The Congressional Budget Office on Friday said tax revenues and emergency measures after June 15 “will probably allow the government to continue financing operations through at least the end of July.”
The updated guidance otherwise reiterated the CBO’s earlier uncertainty about the debt ceiling during the first few weeks of June. Even though mid-June tax revenues could ease pressure on the Treasury through July, there’s still the risk of default in the first few weeks of June, the key government forecaster said.
related investing news
“If the debt limit remains unchanged, there is significant risk that at some point in the first two weeks of June, the government will no longer be able to pay all of its obligations,” said the CBO report.
The new report came as the White House and congressional leaders postponed a scheduled Friday meeting to continue negotiations, citing little progress so far over any deal to cut spending and pair that with a debt limit hike.
“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. That uncertainty exists because the timing and amount of revenue collections and outlays over the intervening weeks could differ from CBO’s projections,” said the latest report.
The CBO also issued an updated projection of the federal budget deficit for 2023, raising it to $1.5 trillion.
The office warned that there was still “a great deal of uncertainty” around the deficit figure, in part due to an expected Supreme Court ruling on President Joe Biden‘s student loan forgiveness plan.
Legal experts told CNBC the nation’s highest court is likely to strike down the $400 billion debt forgiveness plan, given the court’s conservative majority.
If that happens, the administration would likely record the money it set aside for the loan forgiveness last year as a reduction in outlays this year, the CBO reported.
The CBO is a nonpartisan federal agency that provides objective budget and economic data to Congress, typically to inform legislation.
The debt ceiling talks were postponed less than a day before Biden was set to sit down with House Speaker Kevin McCarthy, R-Calif., Senate Minority Leader Mitch McConnell, R-Ky., Senate Majority Leader Chuck Schumer, D-N.Y., and House Minority Leader Hakeem Jeffries, D-N.Y.
That meeting was to be the second this week, after a Tuesday huddle failed to produce any significant developments.
It was unclear Friday what impact, if any, the new report would have on talks currently underway at the staff level, between aides to the four congressional leaders and White House liaisons.
As both the House and Senate prepared to leave for the weekend on Thursday, McCarthy said he had not seen “a seriousness” from the White House regarding any potential deal. “It seems like they want to default more than they want a deal,” the California Republican told reporters in the Capitol.
Democrats appeared equally dug in, as Schumer indicated in a letter to his caucus Friday, in which he said staff level talks would continue in the coming days.
CNBC Politics
Read more of CNBC’s politics coverage:
Yet even as aides worked to find common ground, Schumer said Democratic senators would keep “highlighting the devastating impact” of cuts to the federal budget that are part of a bill passed by House Republicans last month.
Central to the partisan impasse is the White House’s insistence that Congress vote to raise the debt limit without preconditions, and House Republicans’ demand that any debt limit hike be paired with sweeping cuts to federal spending and new work requirements for social safety net programs.
Failure to raise the debt ceiling before the U.S. runs out of available cash and emergency measures would cause an “economic catastrophe,” Treasury Secretary Janet Yellen said Monday.
“That is something that could produce financial chaos, it would drastically reduce the amount of spending and would mean that Social Security recipients and veterans and people counting on money from the government that they’re owed, contractors, we just would not have enough money to pay the bills,” Yellen told CNBC’s “Closing Bell: Overtime.”
Political brinkmanship over raising the U.S. debt ceiling risks “serious economic costs” even without the “catastrophe” of a default, Treasury Secretary Janet Yellen warned Thursday at Group of Seven finance talks in Japan.
Hours earlier, former president Donald Trump urged Republican legislators to trigger the first-ever U.S. debt default by refusing to lift the limit if Democrats don’t agree to spending cuts.
President Biden has threatened to call off his upcoming trip to Asia, including in-person attendance at next weekend’s G-7 summit, if the deepening standoff isn’t resolved soon.
“In my assessment — and that of economists across the board — a default on U.S. obligations would produce an economic and financial catastrophe,” Yellen said in a speech.
U.S. Treasury Secretary Janet Yellen takes questions from journalists during a news conference at a meeting of G-7 finance ministers and central bank governors in Niigata , Japan on May 11, 2023.
SHUJI KAJIYAMA / POOL / AFP via Getty Images
“Short of a default, brinkmanship over the debt limit can also impose serious economic costs,” Yellen said as a three-day meeting of finance ministers and central bank chiefs began in the port city of Niigata ahead of the G-7 summit later this month in Hiroshima.
The lifting of the so-called debt ceiling — a limit on government borrowing to pay for bills already incurred — is often routine.
But Republicans, who won control of the House of Representatives in 2022, have vowed to only raise the limit from its current $31.4 trillion maximum if spending curbs are enacted.
After reviewing recent federal tax receipts, our best estimate is that we will be unable to continue to satisfy all of the government’s obligations by early June, and potentially as early as June 1, if Congress does not raise or suspend the debt limit before that time,” Yellen wrote in a letter to lawmakers.
On Thursday, she recalled a similar impasse in 2011 that resulted in the United States losing its coveted AAA debt rating.
A high-stakes meeting with Mr. Biden and key lawmakers from both parties on Tuesday yielded no breakthrough, but the group agreed to keep trying to avert a default.
But on Wednesday, Trump — a frontrunner for the 2024 Republican presidential nomination — urged otherwise during a live town hall broadcast on CNN.
“Republicans out there, congressmen, senators — if they don’t give you massive cuts, you’re gonna have to do a default,” he said.
When asked about Trump’s comments, Yellen said, “America should never default” because “it would be tremendously economically and financially damaging.”
“The notion of defaulting on our debt is something that would so badly undermine the U.S. and global economy that I think it should be regarded by everyone as unthinkable,” she said, addling that she’s “very hopeful that the differences can be bridged and the debt ceiling will be raised.”
Attorneys representing a federal government employees’ union sued Treasury Secretary Janet Yellen over the constitutionality of the debt limit, which caps the amount the federal government can borrow to pay for congressionally approved spending.
The move comes amid tense negotiations over raising the debt ceiling as the administration counts down to when it will no longer be able to pay the nation’s bills, known as the X-date. Those bills include those due on the country’s debt — and default on the public debt could have disastrous consequences for the national economy and financial system, experts warn.
The National Association of Government Employees, which represents nearly 75,000 employees working in agencies across the federal government, is seeking an injunction that would prevent the Biden administration from suspending operations of the federal government because it has reached the debt limit and an order declaring the statute unconstitutional and unenforceable.
“This litigation is both an effort to protect our members from illegal furloughs and to correct an unconstitutional statute that frequently creates uncertainty and anxiety for millions of Americans,” the union’s National President DavidHolway said about the suit filed Monday. “The debt ceiling has become a political football for certain members of Congress. If Congress will not raise the debt limit as it has nearly 80 times before without condition, it leaves no constitutional choice for the president.”
The complaint argues the president must ensure the federal government does not default on its debt, pursuant to the 14th Amendment, which states that the validity of the public debt “shall not be questioned.” The president still must find the money to meet its obligations to public debt holders should the debt limit be reached, either through borrowing or by cutting or spending enough to meet debt payments, the suit claims, but the president does not have the authority to cut or suspend programs authorized and funded by Congress under the Constitution.
It also argues the law establishing the debt limit is unconstitutional because it requires the president to decide and seeks suspension of the law until Congress decides which bills should be paid, under its constitutional authority.
Failure to pass legislation to raise the debt limit, the lawsuit argues, will mean “members will suffer irreparable injury from layoffs, furloughs, and loss of employment that are taken without any legitimate authority by the President.”
The U.S. government will no longer be able to meet all its obligations in full and on time sometime between early June and early August if Congress doesn’t raise the federal borrowing limit, according to a new projection released Tuesday by the Bipartisan Policy Center.
The think tank’s estimate falls in line with a projection that Treasury Secretary Janet Yellen made last week, as she said her department’s best estimate is that it could be unable to continue to satisfy all obligations “by early June, and potentially as early…
The artificial intelligence trade may be leaving investors vulnerable to significant losses.
Evercore ISI’s Julian Emanuel warns Big Tech concentration in the S&P 500 is at extreme levels.
“The AI revolution is likely quite real, quite significant. But… these things unfold in waves. And, you get a little too much enthusiasm and the stocks sell off,” the firm’s senior managing director told CNBC’s “Fast Money” on Monday.
In a research note out this week, Emanuel listed Microsoft, Apple, Amazon, Nvidia and Alphabet as concerns due to clustering in the names.
“Two-thirds [of the S&P 500 are] driven by those top five names,” he told host Melissa Lee. “The public continues to be disproportionately exposed.”
Emanuel reflected on “odd conversations” he had over the past several days with people viewing Big Tech stocks as hiding places.
“[They] actually look at T-bills and wonder whether they’re safe. [They] look at bank deposits over $250,000 and wonder whether they’re safe and are putting money into the top five large-cap tech names,” said Emanuel. “It’s extraordinary.”
It’s particularly concerning because the bullish activity comes as small caps are getting slammed, according to Emanuel. The Russell 2000, which has exposure to regional bank pressures, is trading closer to the October low.
“You want to stay in the more defensive sectors. Interestingly enough with all of this AI talk, health care and consumer staples have outperformed since April 1,” Emanuel said. “They’re going to continue outperforming.”
Treasury Secretary Janet Yellen on Monday warned a breach of the U.S. debt ceiling could cause “financial chaos” and downgrade the status of the U.S. dollar as the world’s reserve currency.
Yellen spoke in a CNBC interview a day before President Joe Biden and House Speaker Kevin McCarthy are scheduled to meet at the White House to discuss the debt ceiling. McCarthy, a California Republican, is insisting on spending cuts in exchange for raising the $31.4 trillion borrowing limit. Biden wants the debt ceiling to be raised…
A ‘Now Hiring’ sign posted outside of a restaurant looking to hire workers on May 05, 2023 in Miami, Florida.
Joe Raedle | Getty Images News | Getty Images
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
The U.S. labor market is still hot. There were 253,000 new nonfarm jobs last month, handily beating Wall Street estimates for job growth of 180,000. Average hourly earnings unexpectedly rose by 0.5% — the biggest monthly gain in a year.
U.S. markets jumped Friday as Apple shares popped and regional bank stocks recovered. Asia-Pacific stocks mostly traded higher Monday. China’s Shanghai Composite rose 1.6% even as economists expect the country’s trade surplus to decrease slightly from March to April.
If the White House fails to raise the debt ceiling, there will be a “steep economic downturn” and “economic chaos will ensue,” U.S. Treasury Secretary Janet Yellen warned on Sunday. The U.S. might hit its debt ceiling as early as June 1.
PRO During Berkshire’s meeting, Buffett shared his favorite stocks. One of them is a “better business than any we own,” Buffett said. Another is “one of the best-managed and important companies in the world” — yet Buffett decided to sell shares in it. Here’s why.
A strong jobs reading, a note from JPMorgan and an optimistic earnings report from Apple buoyed U.S. markets Friday.
The gains made by stocks were impressive — especially after the previous few days of renewed banking fears — so let’s start with them. The Dow Jones Industrial Average added 1.65%, the S&P 500 rose 1.85% and the Nasdaq Composite jumped 2.25%.
The tech-heavy Nasdaq’s jump is straightforward: Apple shares leaped 4.7% after the company reported better-than-expected earnings and revenue Thursday. Other Big Tech companies, like Microsoft and Amazon, rose alongside Apple.
Broader markets were boosted by April’s jobs report, which showed a higher-than-expected increase in jobs growth and an unemployment rate of 3.4% — a record low since 1969.
Markets’ reaction might seem confusing at first. A tight labor market implies the Federal Reserve might continue raising interest rates. Generally speaking, that’s bad for markets. Recall January’s jobs report: There were 517,000 new jobs in December, almost three times the forecast. Markets fell on the news.
Yet this time, markets rallied, suggesting that the worry gripping traders is one of recession, not inflation. A strong jobs market increases the probability that the U.S. economy can tame inflation without contracting too severely.
There’s good news on that front, however. On Friday, banking titan JPMorgan Chase upgraded three regional bank stocks to “overweight,” saying that Western Alliance, Zions Bancorp and Comerica were all “substantially mispriced” — as I had argued in Friday’s edition of this newsletter.
Investors digested the note and pushed the SPDR S&P Regional Banking ETF (KRE) up 6.3%. Individual bank stocks saw more drastic jumps: PacWest surged 81.7% and Western Alliance popped 49.2%.
But make no mistake: This isn’t a sign that banking fears have been put to rest definitively. If stocks can swing so drastically in one direction on the back of a note, they can do so in the other at the faintest whisper of trouble. What we’re seeing isn’t renewed confidence, but continued volatility.
Subscribe here to get this report sent directly to your inbox each morning before markets open.
A ‘Now Hiring’ sign posted outside of a restaurant looking to hire workers on May 05, 2023 in Miami, Florida.
Joe Raedle | Getty Images News | Getty Images
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
The U.S. labor market is still hot. There were 253,000 new nonfarm jobs last month, handily beating Wall Street estimates for job growth of 180,000. Average hourly earnings unexpectedly rose by 0.5% — the biggest monthly gain in a year.
U.S. markets jumped Friday as Apple shares popped and regional bank stocks recovered. Europe’s Stoxx 600 rose 1.1% — Adidas, with an 8.9% surge, was a big winner in the index.
If the White House fails to raise the debt ceiling, there will be a “steep economic downturn” and “economic chaos will ensue,” U.S. Treasury Secretary Janet Yellen warned on Sunday. The U.S. might hit its debt ceiling as early as June 1.
PRO During Berkshire’s meeting, Buffett shared his favorite stocks. One of them is a “better business than any we own,” Buffett said. Another is “one of the best-managed and important companies in the world” — yet Buffett decided to sell shares in it. Here’s why.
A strong jobs reading, a note from JPMorgan and an optimistic earnings report from Apple buoyed U.S. markets Friday.
The gains made by stocks were impressive — especially after the previous few days of renewed banking fears — so let’s start with them. The Dow Jones Industrial Average added 1.65%, the S&P 500 rose 1.85% and the Nasdaq Composite jumped 2.25%.
The tech-heavy Nasdaq’s jump is straightforward: Apple shares leaped 4.7% after the company reported better-than-expected earnings and revenue Thursday. Other Big Tech companies, like Microsoft and Amazon, rose alongside Apple.
Broader markets were boosted by April’s jobs report, which showed a higher-than-expected increase in jobs growth and an unemployment rate of 3.4% — a record low since 1969.
Markets’ reaction might seem confusing at first. A tight labor market implies the Federal Reserve might continue raising interest rates. Generally speaking, that’s bad for markets. Recall January’s jobs report: There were 517,000 new jobs in December, almost three times the forecast. Markets fell on the news.
Yet this time, markets rallied, suggesting that the worry gripping traders is one of recession, not inflation. A strong jobs market increases the probability that the U.S. economy can tame inflation without contracting too severely.
There’s good news on that front, however. On Friday, banking titan JPMorgan Chase upgraded three regional bank stocks to “overweight,” saying that Western Alliance, Zions Bancorp and Comerica were all “substantially mispriced” — as I had argued in Friday’s edition of this newsletter.
Investors digested the note and pushed the SPDR S&P Regional Banking ETF (KRE) up 6.3%. Individual bank stocks saw more drastic jumps: PacWest surged 81.7% and Western Alliance popped 49.2%.
But make no mistake: This isn’t a sign that banking fears have been put to rest definitively. If stocks can swing so drastically in one direction on the back of a note, they can do so in the other at the faintest whisper of trouble. What we’re seeing isn’t renewed confidence, but continued volatility.
Subscribe here to get this report sent directly to your inbox each morning before markets open.
Treasury Secretary Janet Yellen said last week that the U.S. could default on its debt obligations as soon as June 1. House Financial Services Committee chair Rep. Patrick McHenry says Republicans have no “red lines” in negotiations, “other than that we have to address our fiscal house at a time when federal spending is up more than 40% from pre-COVID levels.”
Be the first to know
Get browser notifications for breaking news, live events, and exclusive reporting.
Gloria Larkin is frustrated. She’s worried Congress is about to hurt small business owners like her and her clients if they cannot reach a deal over the debt limit.
“This issue of default with a subsequent recession would drastically have a negative impact on our business personally because it would cause our clients, our customers, to condense their spending,” Larkin said. Her company TargetGov helps businesses pursue federal contracts across the country – everything from construction opportunities to cybersecurity, even work cleaning office buildings.
Larkin, like many of the nation’s small business owners, is concerned over a looming threat of the government being unable to pay its bills. If the United States defaults on its debt for the first time, economists warn it would cause financial and economic turmoil affectig just about every aspect of the economy.
“We’re just rebounding from COVID, et cetera, that so many small businesses didn’t even survive,” Larkin said. “Now those of us who are hanging on by a thread, Congress wants us to now put up with their theatrics in threatening something they don’t even need to. Oh my gosh, it’s just political theaterics that they’re creating anxiety at a small business level that is extraordinarily damaging to our small business psyche.”
Sixty-five percent of small business owners say they will be negatively affected if Congress fails to raise the debt limit, according to a new survey by Goldman Sachs 10,000 Small Business Voices. Ninety percent of small business owners believe it’s important for the government to avoid default on the nation’s debt.
Treasury Secretary Janet Yellen informed congressional leaders in a letter Monday that the U.S. might not be able to pay its bills as soon as June 1 and urged lawmakers to raise or suspend the debt limit as soon as possible. Doing so is not about future spending, but paying for the debt already incurred. Yellen said even waiting until the last minute could hurt business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the U.S. credit rating.
“These survey results make clear that a default would have very negative ramifications for small business owners,” said Joe Wall of Goldman Sachs 10,000 Small Businesses Voices. “Over the coming weeks, America’s small business owners will be looking to Washington for certainty and a sound resolution to the nation’s credit crunch.”
Among small business owners surveyed, 53% said it is “absolutely essential” the federal government not default on its payments. Another 30% said it’s “very important.” 7% said it’s somewhat important, and 2% said it’s not important.
But Congress appears no closer to reaching a deal than it did in January when Yellen first urged action. House Republicans passed a bill that includes dramatic spending cuts that are dead on arrival in the Senate. The Biden Administration has maintained it would like Congress to pass a clean debt limit bill and spending can be addressed separately.
While 90% of small business owners believe it’s important for the government to avoid default – 81% of those surveyed said it is important for Congress to enact spending cuts in conjunction with raising the debt ceiling. That includes 40% who said it’s “absolutely essential” and 29% who said it’s “very important.”
President Biden has invited congressional leaders to the White House on May 9 for a meeting to discuss the debt limit.
But if a deal is not reached by the so-called “X-date,” more than just small businesses would feel the impact. A default on the debt could impact when Social Security checks, military pay, veteran benefits and more go out to millions of Americans. It would roil the financial markets, analysts have warned, and lead to higher borrowing costs for businesses, governments and everyday Americans.
