Janet Yellen Warns of Looming Debt Ceiling Crisis, Calls for Congressional Action

U.S. Treasury Secretary Janet Yellen has alerted congressional leaders to an impending financial crisis, stating that her department will need to implement "extraordinary measures" as early as January 14 to prevent the government from breaching its debt ceiling.

In a letter to House and Senate leaders, Yellen said the statutory debt ceiling, suspended until January 1, is expected to be reached between January 14 and 23. These extraordinary measures, previously used to keep the government functioning, will be deployed to avoid defaulting on the nation's debt.

“I respectfully urge Congress to act to protect the full faith and credit of the United States,” Yellen wrote.

The debt ceiling, currently at $36 trillion, has ballooned under successive administrations, exacerbated by pandemic-driven borrowing costs and rising inflation. While Congress passed the Fiscal Responsibility Act in 2023, which temporarily suspended the $31.4 trillion borrowing cap until January 1, a resolution on long-term borrowing limits remains elusive.

Yellen noted that a temporary debt reduction on January 2, linked to Medicare trust fund securities, would delay the need for immediate action. However, she emphasized that swift congressional action is necessary to avert a potential default.

The warning follows President Joe Biden’s signing of a bill last week that averted a government shutdown but omitted provisions addressing the debt ceiling. The issue has sparked fierce debate, particularly among Republicans, many of whom have aligned with former President Donald Trump’s demands to refuse any debt ceiling increases without significant concessions.

"Anything else is a betrayal of our country," Trump said in a recent statement, criticizing compromises made by GOP lawmakers.

With Republicans poised to control the White House, Senate, and House in the new year, their fiscal priorities, including plans to extend Trump-era tax cuts, have reignited debates over how to manage soaring national debt.

Federal borrowing costs, driven higher by post-pandemic inflation, are projected to surpass spending on national security next year. Analysts warn that failure to address the debt ceiling could lead to severe economic consequences, including shaken investor confidence and increased borrowing costs for the U.S.

Yellen’s call to action underscores the urgency of bipartisan cooperation to safeguard the nation’s financial stability, as the clock ticks toward the January deadline.