Yellen says that without raising the debt limit, the US could risk default in August

WASHINGTON (Reuters) – Treasury Secretary Janet Yellen urged Congress on Wednesday to raise or suspend the federal debt limit as soon as possible, warning that if lawmakers do not act, the United States could risk a default in August.

“I think defaulting on the national debt should be considered out of the question,” Yellen said in testimony before the Senate Appropriations Subcommittee. “Not raising the debt limit will have very dire economic consequences.”

Yellen said that to avoid uncertainty in financial markets, Congress should pass new debt-ceiling legislation, allowing the Treasury to continue borrowing before the latest suspension expires on July 31.

In the past, the Treasury Department has avoided potential defaults for several months by using unusual measures such as suspending contributions to government employee pension funds, but spending on COVID-19 relief programs has added uncertainty to government cash flows.

Yellen said those measures could be exhausted in August, when Congress takes its traditional summer recess.

(Reporting by David Lauder. Editing in Spanish by Javier Lira)