U.S. Treasury Secretary Janet Yellen warned on Tuesday (April 25) local time that a failure by Congress to raise the federal government's debt ceiling, and the resulting default, would trigger an economic disaster that would lead to higher interest rates in the coming years.
In January, U.S. federal government debt hit the legal limit of about $31.4 trillion.
The Treasury then deployed so-called extraordinary measures to temporarily stave off a default on its debt, including suspending investments in certain government accounts that would allow the Treasury to continue making payments to bondholders, social security beneficiaries and others.
However, since late January, the Democrats and the Republicans have been arguing about raising the debt ceiling and have been unable to reach an agreement.
Bank of America Raises China's Economic Growth Forecast
U.S. House of Representatives Speaker McCarthy introduced a bill last week that would raise the debt ceiling by $1.5 trillion, or extend it through March 2024, but only if it cut spending by $4.5 trillion, including ending the inflation cuts provided by the Inflation Reduction Act. Clean energy subsidies, ending the Biden administration's plan to forgive some student loans and clawing back unused COVID-19 relief funds, among other things.
In short, McCarthy's plan calls for the suspension of a series of landmark achievements during Biden's tenure, and Biden and the Democratic Party will naturally not agree to this proposal.
According to the White House, Biden is expected to veto McCarthy's debt ceiling plan.
