Mario Parker and Christopher Condon
Sat, 13 May 2023 at 7:12 pm BST
(Bloomberg) — President Joe Biden said budget talks to avert a catastrophic US default are moving along and that negotiators will know more in the coming days.
“We’ve not reached the crunch point yet but there’s real discussion about some changes we all could make,” Biden told reporters Saturday before boarding Air Force One. “But we’re not there yet.”
Budget talks between White House staff and aides to Congressional leaders continued over the weekend after a planned Friday meeting with Biden and House Speaker Kevin McCarthy was delayed until next week in what each side said was a sign of progress.
Treasury Secretary Janet Yellen has warned that Treasury will run out of money as soon as June 1 or in the weeks afterward.
The Treasury said Friday it had just $88 billion of extraordinary measures to help keep the government’s bills paid as of May 10. That’s down from around $110 billion a week earlier and means just over a quarter of the $333 billion of authorized measures are still available to keep the country from running out of borrowing room under the statutory debt limit.
Yellen will update Congress on how close the US is to defaulting on its financial obligations within the next two weeks and defended the steep rise of debt issuance under the Biden administration.
“I don’t want to be specific about when we do updates — when we think we have more information, but certainly within the next couple of weeks,” Yellen said Saturday in an interview with Bloomberg News in Niigata, Japan.
A day after the Congressional Budget Office’s updated projections showed it expects the US debt to hit 119% of gross domestic product by 2033, the highest in US history, the Treasury chief responded to concerns over the level of federal borrowing.
“We proposed $3 trillion of deficit reduction over 10 years, and I would say the fiscal path involved in our budget is reasonable,” Yellen said. She acknowledged the level of debt could present problems, especially if interest rates stay elevated in the long run.
Yellen spoke as she wrapped up three days of talks with finance ministers and central bank governors from Group of Seven countries. As officials discussed plans to shift global supply chains, sanctions against Russia and other topics, Yellen was continually asked by the media and her counterparts about the crisis looming over the US.
In an interview with Bloomberg Television on Friday, she said the US would be forced to renege on some obligations if Congress doesn’t raise the debt ceiling in time. She said no plan on whether or how to prioritize some payments over others had yet been presented to Biden and the only good fix is to raise the cap.
“We have to default on some obligation, whether it’s Treasuries or payments to Social Security recipients,” she said in the Friday interview. “That’s something America hasn’t done since 1789. And we shouldn’t start now. So we’ve not discussed what to do.”
In Saturday’s interview, Yellen sounded notes of caution, not only from the showdown over the debt ceiling, but also from rising interest rates and the deteriorating state of the commercial real estate sector.
“My sense is that the lending standards have been relatively conservative at banks,” she said of loans to commercial real estate players. “But on the other hand, you’ve had a huge shock to the demand for office space from the pandemic and you have higher interest rates.”
She said she expected regulators would be looking “very carefully” at bank exposure to the sector, with that task also “part of ongoing supervision.” She added, “I don’t think this is an out-sized financial stability risk.”
–With assistance from Christopher Anstey and Josh Wingrove.
(Adds Yellen interview, background starting in sixth paragraph)