Yellen warns Congress of possible debt limit by mid-January.

In a letter addressed to congressional leaders on Friday afternoon, Treasury Secretary Janet Yellen announced that her agency will need to start taking "extraordinary measures" in order to prevent the nation from hitting the debt ceiling. Yellen explained that the Treasury is expecting to reach the statutory debt limit sometime between January 14 and January 23. This means that the government will have to implement special accounting maneuvers to avoid breaching the debt ceiling, which is currently suspended until 2025.

The department has used these "extraordinary measures" in the past to keep the government running. However, once these measures run out, the government risks defaulting on its debt unless lawmakers and the president agree to raise the borrowing limit. Yellen urged Congress to take action in order to protect the full faith and credit of the United States.

This news comes after President Joe Biden signed a bill into law last week, preventing a government shutdown but not including former President Donald Trump's demand to raise or suspend the debt limit. The bill was passed after heated debates among Republicans over how to address Trump's demand. Trump himself stated that anything else would be a betrayal of the country.

The Fiscal Responsibility Act, passed in the summer of 2023, suspended the nation's $31.4 trillion borrowing authority until 2025. However, Yellen noted that on January 2, the debt is projected to temporarily decrease due to the redemption of nonmarketable securities held by a federal trust fund associated with Medicare payments. This means that the Treasury does not expect to take any extraordinary measures on January 2 to prevent default on obligations.

Currently, the federal debt stands at approximately $36 trillion, a significant increase under both Republican and Democratic administrations. The rise in inflation due to the pandemic has also led to higher government borrowing costs, with debt service expected to exceed national security spending next year. With Republicans poised to hold full control of the White House, House, and Senate in the new year, there are plans to extend Trump's 2017 tax cuts and address other priorities, but debates continue over how to pay for them.

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