Treasury Secretary Steven Mnuchin notified Congress Wednesday that he will begin taking “extraordinary measures” on March 2 to prevent defaulting on the debt and asked lawmakers to raise the debt ceiling.
The debt ceiling, was was suspended in a government funding compromise in 2018, goes back into effect on March 1, at which point the U.S. will be at the legal limit of its debt, barring congressional and executive branch action, forcing Mnuchin to shift funds around government accounts to pay incoming bills.
“Honoring the full faith and credit of the United States is a critical commitment,” said Mnuchin in a letter sent to senior members of Congress. “I encourage Congress to raise the debt limit.”
On Tuesday, the Congressional Budget Office told Congress the Treasury would lose its ability to maneuver around the debt limit in late September or early October, around the same time the next round of government funding needs to be provided. At that point, the government would face the risk of a default. In his letter to Congress, Mnuchin did not identify his own deadline for raising the debt ceiling.
The first extraordinary measure that Treasury plans to take is a suspension of Treasury bond debt it sells to state and local government.
The debt limit is separate from government funding. The debt limit prevents the Treasury from issuing bonds to pay bills that Congress has already incurred, including for interest on the debt.
On Tuesday and Wednesday, during regularly scheduled testimony on the state of the U.S. economy before financial policy congressional committees, Federal Reserve Chairman Jerome Powell stated that it would badly hurt the economy if the U.S. failed to honor outstanding debts.
“It’d be a very big deal not to pay our bills when and as due,” Powell told the Senate Banking Committee on Tuesday.
Though he urged Congress raise the debt ceiling, Powell stressed the need to reduce federal deficits and stabilize the national debt, either through reducing spending or raising revenues.
“The U.S. federal government is on an unsustainable fiscal path,” said the Fed chairman on Tuesday.
