The head of the US Treasury recalled the need to raise the ceiling of public debt before the summer

If Congress does not raise the national debt ceiling in the summer of 2023, the United States could face a recession, stated US Treasury Secretary Janet Yellen in an interview with Axios.

She noted that the threat of default makes her “nervous” as it would be “devastating”. “And I think we would have a recession in the United States,” Yellen said. The head of the Ministry of Finance stressed that spending must be reduced to match tax revenues.

Yelen also added that there could also be “psychological consequences” for the country’s economy – if consumers are afraid to spend, this will further affect spending and deepen the recession.

She said that any formal negotiations to raise the debt ceiling would be between Congress and the White House. “The president and Congressional leadership have a responsibility to find a way to raise the national debt ceiling,” Yellen said.

Early January 2023 Yellen warned Parliament that the US Congress needs to “immediately” resolve the issue of the country’s public debt, since the borrowing limit of $ 31.381 trillion will be exhausted on January 19. The national debt limit determines the total amount of money that the US government can borrow to finance its obligations – paying off coupons, paying social benefits, paying for medical insurance and tax refunds. The US Treasury cannot exceed the limit, this requires the permission of Congress, which has two options – to increase the ceiling or suspend it.

To avoid a default when the ceiling is reached, the Ministry of Finance may suspend contributions to pension and social funds and use accumulated reserves ($372 billion as of January 11). According to Yellen, these measures will last until early June. If by this time Congress does not come to a consensus, the United States risks facing a default on its obligations – the Treasury will lose the ability to attract new loans, and there may not be enough money to uninterruptedly finance regular expenses and interest payments on the debt.