Yellen: U.S. could reach debt default point in August, pleads with Congress to raise or suspend debt ceiling

U.S. Treasury Secretary Yellen “implored” Congress to raise or suspend the U.S. debt ceiling before the current debt ceiling suspension ends on July 31, or the U.S. could default on its debt as early as August, during a hearing before the Senate Appropriations Committee on Wednesday local time.

Yellen said at the hearing that special measures to control the debt ceiling could lapse during the August congressional recess, meaning the U.S. could reach a debt default point in August. Yellen warned that if no action is taken, a national debt default in the United States would be catastrophic and could trigger a crisis that would threaten Americans’ jobs and savings, “and we are still at a critical time in our recovery from the epidemic.” She stated.

“We cannot tolerate any possibility of defaulting on our debt.”

Yellen said it is impossible to predict exactly how long the special measures will last after the deadline has passed. Yellen had said in May that temporary measures to avoid a breach of the debt ceiling could run out this summer.

When asked by lawmakers whether the current market trend of inflation is only temporary, Yellen said that due to “supply bottlenecks”, inflation is indeed considered temporary. Inflation is expected to stabilize at around 2% for more than a year, and most inflation expectations indicators remain stable. She said inflation will return to normal levels after this year, “by the end of the year, the U.S. inflation rate will be below 5%”.

She also said that the Fed’s excess reserve rate (IOER) adjustment is a technical adjustment, noting that the Fed’s monetary policy stance has not changed in any way. Yellen also said the economic reboot is a “rocky road”, but is now on a good track.