Treasury Warns Its U.S. Debt-Limit Tools May Run Out Faster

The U.S. Treasury Department warned that its fiscal tools to keep the national debt from breaching its congressionally mandated limit may fail to last as long as in prior years, adding pressure on lawmakers to raise or suspend the ceiling before it comes back into effect in August.

“In light of the substantial Covid-related uncertainty about receipts and outlays in the coming months, it is very difficult to predict how long extraordinary measures might last,” the agency said in a section of its so-called quarterly refunding statement on Wednesday. “Treasury is evaluating a range of potential scenarios, including some in which extraordinary measures could be exhausted much more quickly than in prior debt limit episodes.”

The legal limit on U.S. debt returns on Aug. 1 after a two-year suspension. While the Treasury has options to keep paying interest on debt for a time -- such as redirecting money from federal retirement funds -- legislative action will be vital.

Briefing reporters on a conference call Wednesday, a Treasury official declined to be more specific about how long the department can continue funding the government’s obligations if lawmakers don’t suspend or lift the debt limit by July 31. The official emphasized that spending related to the Covid-19 pandemic makes it particularly difficult to predict that timeline, making it more important for Congress to act.

Treasury Warns Its U.S. Debt-Limit Tools May Run Out Faster

Democrats are widely expected to use a legislative tool called budget reconciliation to raise the ceiling to defuse any move by Republicans to use it as leverage for spending cuts as they did in 2011. That means a decision to raise the ceiling would likely require all 50 members of the Senate Democratic caucus and the slim Democratic House majority to be on board, something that isn’t yet clear.

The debate may also be tied to action over President Joe Biden’s economic proposals in Congress in the coming months.

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