The Treasury Department took initial steps to start paying off the federal government’s bills on Monday because Congress missed a July 30 deadline to either raise or suspend the debt ceiling.
In a letter to Congressional leaders, Treasury Secretary Janet Yellen said she’s starting what are known as “extraordinary measures” to keep the federal government afloat. She urged lawmakers to take swift action to either raise or suspend the debt ceiling, which hit its statutory limit on August 1.
“I respectfully urge Congress to protect the full faith and credit of the United States by acting as soon as possible,” Yellen said in the letter. The nonpartisan Congressional Budget Office said in an analysis that Treasury would exhaust its special powers sometime in September or October. Absent action from Congress, the US would then default on its loans.
A default from the federal government could precipitate a chain reaction of cash shortages that could hit bondholders including the people, businesses, and foreign governments who hold US debt. It could also lead to a spike in interest rates.
Yellen said the duration of “extraordinary measures” was uncertain because of the economic impact from the pandemic on tax receipts. Last month, she noted that raising the debt ceiling does not prompt more federal spending, it only permits the government to pay back what it owes.
“Failure to meet those obligations would cause irreparable harm to the U.S. economy and the livelihoods of all Americans,” Yellen wrote in a letter to House Speaker Nancy Pelosi.
Congress last suspended the debt ceiling for two years under President Donald Trump in July 2019. But now, many Republicans are balking at raising the debt limit without ensuring spending cuts from Democrats, as they similarly did when they controlled Congress under President Barack Obama. Senate Minority Leader Mitch McConnell suggested last month Democrats would have to raise the debt ceiling on their own.
Treasury Secretary Janet Yellen sent a letter to Congress urging lawmakers to renew the federal government’s ability to pay off its debt ahead of a major deadline, warning that failing to do so in a timely manner risks major damage for average people and the economic recovery.
Republicans led by Senate Minority Leader Mitch McConnell are balking at raising the debt limit without ensuring spending cuts from Democrats. He suggested earlier this week that Democrats would have to do it on their own with no GOP support.
In the letter, Yellen said the US will hit its statutory debt limit on August 1. The next day, she said Treasury is prepared to take “certain extraordinary measures” to pay the country’s outstanding bills and prevent a default that could ripple through the global economy.
“Failure to meet those obligations would cause irreparable harm to the economy and the livelihoods of all Americans,” Yellen wrote on Friday to House Speaker Nancy Pelosi. She noted that raising the debt ceiling doesn’t prompt more federal spending, it only authorizes the government to pay what it already owes.
Yellen underscored the potential damage that even the threat of a default could have on the economy. She cited a 2011 showdown between Obama and House Republicans that led to the first-ever credit downgrade of US debt. Yellen also said it’s hard to predict when Treasury would exhaust its ability to pay off the US’s bills on its own.
On Wednesday, the nonpartisan Congressional Budget Office forecasted Treasury would “probably” run out of cash sometime in October or November.
Republican opposition is hardening now that President Joe Biden sits in the White House. In July 2019, they voted to suspend the borrowing limit for two years under President Donald Trump.
A default from the federal government could precipitate a chain reaction of cash shortages, starting with US bondholders that include people, businesses, and foreign governments. Democrats insisted this week they wouldn’t allow the GOP to use the debt ceiling as a political weapon.
“We’ll handle our business,” Sen. Brian Schatz of Hawaii, a cosponsor of a bill to abolish the debt ceiling, told Insider on Wednesday. “This is something the Hill freaks out about every year or so. We will not negotiate over it, we will not concede anything and we won’t fail to do our job.”
The Biden administration is pushing lawmakers to raise the debt ceiling ahead of the August 2 deadline.
“We certainly expect Congress to act in a bipartisan manner as they did three times under the prior administration to raise the debt limit,” White House Press Secretary Jen Psaki said Friday.
The US’ Comptroller of the Currency has said he hopes officials will set up a “regulatory perimeter” for cryptocurrencies.
Michael Hsu, who oversees the country’s national banks, told the Financial Times that agencies overseeing the US financial system want to coordinate “a lot more” on the $1.5 trillion cryptocurrency market, which has boomed in 2021 but crashed sharply two weeks ago.
The comments were one of the clearest signs yet that US regulators plan to take a more active role in the cryptocurrency market.
“It really comes down to coordinating across the agencies,” Hsu said. “Just in talking to some of my peers, there is interest in coordinating a lot more of these things.”
Officials around the world worry that the crypto boom is sucking in amateur traders who could get badly burned. Bank of England governor Andrew Bailey said earlier in May that people should “buy them only if you’re prepared to lose all your money.”
In the US, there are growing signs that President Joe Biden’s administration wants to take a more hands-on approach than Donald Trump’s White House.
Biden’s Treasury Secretary Janet Yellen said in February that “the misuse of cryptocurrencies and virtual assets is a growing problem.” She highlighted their use in money laundering, terrorism and drug trafficking.
Hsu, who was appointed as Acting Comptroller by Yellen, said innovation in finance through technologies like blockchain and the rise of fintech companies reminded him of the financial crisis. He said new technologies brought great promise, but also great risk.
The US Department of Treasury announced on Wednesday that the US ran a $1.9 trillion budget deficit in the first seven months of the fiscal year – a record for that time frame.
As the country continued to recover from the pandemic, federal spending contributed to the budget deficit which marked a 30% increase from a year earlier. The department also found that outlays, or personal spending, rose 22%, to a record $4.1 trillion, which can be attributed to the government’s stimulus checks and extended unemployment benefits to aid Americans during the pandemic.
In addition, federal tax receipts also hit a record for the seven-month period ending in April, rising 16% to $2.1 trillion.
As the country continues to reopen, the US economy is likely to see a boost as more jobs are added to the labor market and spending increases. However, last week’s jobs report fell significantly short of expectations, adding just 266,000 despite economists’ prediction of at least 1 million, causing some businesses and lawmakers to cast the blame on government aid, like extended $300 weekly unemployment benefits, which they say disincentivizes people from returning to work.
But President Joe Biden, and his administration, are confident in the economy’s recovery.
“I think as we continue to move forward here, hopefully in the coming months we are going to see lots of those Americans who are looking for jobs, finding jobs, and I’ll be able to stand in front of this camera and talk about the great gains we’ve had,” Labor Secretary Marty Walsh said last week. “But I still think 266,000 jobs this month is a good number.”
The Biden administration spent much of its first days in office testing how further stimulus might drive inflation higher. No modeled scenario saw price growth surge out of control, The New York Times reported on Wednesday.
Still, the report said repeatedly that White House and Treasury officials are “worried” about the issue.
The inflation debate has loomed large over the White House since before President Joe Biden was even inaugurated. The president unveiled a $1.9 trillion relief proposal in January, pitching the plan as an additional boost for the US economic recovery. Largely Democrat-affiliated economists have fiercely debated the inflation risks of such large deficit-financed spending, led by former Obama- and Clinton-administration official Larry Summers.
Democrats largely backed the measure, saying the risks of retracting government support were greater than the risks of spending too much. But Republicans – and even some moderate Democrats – balked at the hefty price tag and cited fears that another set of stimulus checks could spark a dangerous surge in inflation.
“This is the least responsible fiscal macroeconomic policy we’ve had for the last 40 years,” Summers said in a March interview with Bloomberg TV, adding the measures are a product of “intransigence” among Democrats and “irresponsible behavior” among Republicans.
Democrats went ahead without any Republican votes, passing the bill via reconciliation, and Biden signed it into law on March 11. Still, the stimulus push wasn’t without some trepidation. A handful of officials in the Treasury Department spent several months modeling how Americans would deploy new fiscal support, and whether any outcome could lead to stifling inflation, according to The Times. Treasury Secretary and former Federal Reserve Chair Janet Yellen even helped create the models.
Their observations were encouraging and lend new support to Biden’s latest spending proposal. The team tested a range of potentialities for how quickly Americans would spend stimulus, where they would deploy cash, and how the labor market’s recovery would affect inflation. Yet no outcome saw inflation charge out of the Fed’s control and risk a new recession, the Times reported.
The findings have been hinted at in statements from the White House and the Treasury in recent weeks. Long-term scarring in the labor market poses a greater risk than inflation, Yellen told ABC’s “This Week” in March. Economic reopening is expected to drive a jump in prices, but the effects will likely be temporary and fail to drive sustained inflation, she added.
The administration’s Council of Economic Advisors mirrored Yellen in a Monday blog post. A temporary rise in inflation is consistent with trends seen after other major events like wars or past labor-market rebounds, economists Ernie Tedeschi and Jared Bernstein said. The White House will continue to monitor consumer prices, but it expects inflation to fade as actual price growth “runs more in line with longer-run expectations,” they added.
Fed Chair Jerome Powell has repeatedly backed up such an outlook. The central bank chief said last month that the Fed will “be patient” in monitoring inflation and eventually lifting interest rates. The most likely scenario during the recovery is that prices move higher but fail to stay elevated as the country enters a new sense of normalcy, Powell said in early March.
Although the Fed operates independently from the executive branch and doesn’t play a role in fiscal spending, officials testing inflation scenarios told the Times that the Biden administration trusts the Fed to intervene and stave off price growth should it accelerate faster than expected.
The latest data signals the country is far from any sort of inflation scare. The Consumer Price Index – a popular gauge of overall inflation – rose 0.6% in March as stimulus, reopening, and vaccination fueled stronger economic activity. Economists expected a 0.5% gain.
Consumer prices rose 2.6% year-over-year, also exceeding estimates. The measure is skewed somewhat by year-ago data, since prices initially dropped when the pandemic first slammed the US economy. Those readings present a lower bar for year-over-year inflation. Though the data points to stronger inflation, price growth still has a ways to go before it trends at the Fed’s above-2% level and warrants serious concern.
That opening paves the way for additional spending. Biden unveiled a $2.3 trillion infrastructure proposal late last month that includes funds for nationwide broadband, improved roads and bridges, and affordable housing. The package is expected to be spent over eight years, compared to the weeks-long rollout seen with much of Biden’s stimulus plan. Such long-term deployment would present little inflationary risk, and Biden has portrayed the plan as an investment in American industry, jobs, and research as opposed to an emergency relief measure.
The March uptick in inflation, however, does signal that price growth is trending higher. Future CPI readings are set to be closely watched releases as the administration balances its spending goals with a red-hot economy. Economists and officials are anticipating stronger inflation. How price growth trends from there will determine whether the Biden administration was successful or created new risks.
Americans who don’t receive a $1,400 direct deposit by March 24 can expect either a mailed check or a prepaid debit card, according to the Treasury Department.
The cabinet agency said in a statement that a second round of stimulus checks were sent out on Friday with a pay date of Wednesday, March 24. People waiting for checks after that date will likely receive theirs by mail.
“Taxpayers who do not receive a direct deposit by March 24 should watch the mail carefully in the coming weeks for a paper check or a prepaid debit card, known as an Economic Impact Payment Card, or EIP Card,” Treasury said on Monday.
The Biden administration along with Congress approved $1,400 stimulus checks earlier this month, the third wave of federal payouts over the last year. The IRS started issuing the payments only a day after the rescue package was signed into law.
The Treasury Department said on Wednesday it had already deposited 90 million checks, amounting to $242 billion. It also said 150,000 paper checks were mailed.
Singles earning up to $75,000 in adjusted gross income qualify for the full amount, along with couples making up to $150,000. Each adult dependent is eligible for a check as well.
But the stimulus check amounts shrink much more quickly above those thresholds. Individuals earning more than $80,000 and couples making above $160,000 will receive zero.
Many Americans are seeing $1,400 stimulus checks hit their bank accounts this weekend under President Joe Biden’s stimulus law. But people may not be able to immediately tap into it – at least, not until St. Patrick’s Day at the earliest.
The direct payments, which the IRS labeled as “Economic Impact Payments,” are set to be paid out on March 17, per the agency.
“As with the first two Economic Impact Payments in 2020, most Americans will receive their money without having to take any action,” the IRS said on its website. “Some Americans may see the direct deposit payments as pending or as provisional payments in their accounts before the official payment date of March 17.”
That means it could take several more days for the relief checks to clear at major banks like Wells Fargo. Others such as Chase said on their website it expected to release the payouts March 17 and after.
“Wells Fargo will process all of the direct deposits according to the effective date provided by the U.S. Treasury,” the bank said in numerous follow-up tweets to customers frustrated with the delay.
Some digital banks, like Chime, however, said they authorized clients to instantly access their federal cash. On Friday, they issued a “stimmy alert” on Twitter saying the service had already distributed $600 million.
Chime did not immediately respond to a request for comment on their decision.
The IRS also said Friday that people can begin tracking the status of their checks using the “Get my Payment” portal on Monday. The agency also said it expects to issue more direct deposits and send payments as a check or debit card over the coming weeks.
Singles earning up to $75,000 in adjusted gross income qualify for the full amount, along with couples making up to $150,000. Each adult dependent is eligible for a check as well.
However, the stimulus payments phase out much quicker. Individuals earning above $80,000 and couples making above $160,000 will not receive anything.
To help the people who have struggled the most during COVID-19, the US Treasury Department announced a $9 billion investment on Thursday in programs to support low-income and minority communities.
The Treasury Department opened applications for the Emergency Capital Investment Program, which, according to a press release, is designed to help communities traditionally excluded from the financial system gain access to COVID-19 relief. To do so, the Program will invest $9 billion in Community Development Financial Institutions (CDFI) and minority depository institutions (MDI) to support the provision of grants and loans in low-income and minority areas.
“America has always had financial services deserts, places where it’s very difficult for people to get their hands on capital so they can, for example, start a business. But the pandemic has made these deserts even more inhospitable,” Treasury Secretary Janet Yellen said in a statement. “The Emergency Capital Investment Program will help these places that the financial sector hasn’t typically served well. It will allow people to access capital, especially in communities of color and rural areas.”
According to the press release, the ECIP will set aside $2 billion for those with less than $500 million in assets, and an additional $2 billion for those with less than $2 billion in assets.
The Program also includes:
Incentivized lending with no dividends or interest payable or accruing during the first 24 months;
Maximized Program effectiveness by ensuring stock investments under the ECIP qualify for beneficial capital treatment;
And tools to strengthen CDFIs and MDIs for the long-term.
The $900 billion stimulus package which Congress passed in December included $12 billion for CDFIs and MDIs, and the $9 billion allocated on Thursday is part of that funding.
Along with the ECIP, the press release said two other complementary programs are being implemented: the CDFI Rapid Response Program, which allocated $1.25 billion for CDFIs to respond to the pandemic’s economic impact, and the Emergency Support and Minority Lending Program, which allocated $1.75 billion to expand lending in low-income, minority communities.
The CDFI Rapid Response Program opened on February 25.
This new funding is part of President Joe Biden’s efforts to ensure equity in aid distribution during COVID-19. On February 22, he announced changes to the Paycheck Protection Program to ensure those who had previously been left out of it could receive aid, and the president’s American Rescue Plan includes funding for underserved communities in the forms of small business aid, housing aid, and more.
“Taken together, these three programs, created under the Consolidated Appropriations Act, 2021, enable Treasury to take aggressive action to address the impacts of the ongoing COVID-19 pandemic, and to promote an equitable economic recovery,” the press release said. “These historic investments are intended to provide catalytic growth for institutions and communities that have traditionally been underserved by the financial sector.”
The US economy will struggle for at least a few more months before falling COVID-19 cases and stimulus can drive a full recovery, Treasury Secretary Janet Yellen said Thursday.
In her first television interview since being confirmed last week, Yellen emphasized the importance of using stimulus to bridge the final months of the virus-induced slump.
The Treasury secretary has spent much of her first days in office pushing for President Joe Biden’s $1.9 trillion relief package. Democrats have taken steps to pass the measure without Republican support. But even with additional fiscal relief, the economy is a ways away from marked improvement, Yellen said on Good Morning America.
“This is really an urgent need, and we need to act big,” she added. “We’ve got some tough months ahead before we get control of the pandemic.”
Gauges of labor-market health, retail sales, and consumer confidence all ticked lower through the winter as soaring virus cases and new economic restrictions curbed activity. Some indicators have since shown signs of steady improvement, partially buoyed by the $900 billion stimulus package passed in December.
Most recently, filings for unemployment benefits fell for a third-straight week after hovering above 900,000. Claims totaled an unadjusted 779,000 for the week that ended Saturday, landing below the consensus estimate of 830,000. The trend is encouraging but still leaves claims well above their pre-pandemic levels.
The path of the pandemic also shows a light at the end of the tunnel. The US reported 116,960 new coronavirus cases on Wednesday, according to The COVID Tracking Project. That’s the lowest reading since early November. Hospitalizations have also fallen over recent weeks, suggesting the country is finally getting a hold over the virus’s spread.
Yellen also addressed market volatility seen throughout January spurred by retail investors in forums like Reddit’s r/wallstreetbets. The crowd of casual investors took the stock market by storm by bidding up highly shorted stocks and driving unprecedented rallies in names like GameStop and AMC. Accusations of market manipulation on the online forums have since drawn interest from regulators and Congress.
The Treasury secretary said she would meet with the Federal Reserve, Commodities Futures Trading Commission, and the Securities and Exchange Commission to discuss the trend and potential wrongdoing.
Officials are looking closely at the events but need to “understand deeply what happened” before taking any action, Yellen said.
“We really need to make sure that our financial markets are functioning properly, efficiently, and that investors are protected,” she said.
The Senate voted on Monday evening to confirm Janet Yellen as the nation’s first woman to serve as treasury secretary.
She racked up significant bipartisan support in a 84-15 vote, and her confirmation process was a relatively smooth one because of her extensive economic credentials. Senate minority leader Mitch McConnell voted to confirm her, and she drew unanimous support from a Senate panel on Friday.
Yellen, 74, is the first woman to head the Treasury Department. She is also the first person to have held three of the most important economic positions in American government: Treasury chief, head of the White House Council of Economic Advisors, as well as chair as the Federal Reserve.
“She’s been confirmed four times already in the Senate,” Democratic Sen. Ron Wyden of Oregon, incoming chair of the Senate Finance Committee, told Insider in a recent Capitol Hill interview. “She is really in the Senate confirmation hall of fame because she gets these huge majorities when people vote on her.”
During her confirmation hearing with the Senate Finance Committee last week, Yellen urged Congress to “act big” on another federal rescue package, warning of a worse downturn in the economy without one.
She also said lawmakers should set aside concerns about the rising budget deficit because the cost of borrowing is low, a view shared by many experts.
“Economists don’t always agree, but I think there is a consensus now: Without further action, we risk a longer, more painful recession now-and long-term scarring of the economy later,” she told lawmakers.
She fielded a range of policy questions on the minimum wage, direct payments, and taxes. Yellen said the Biden administration doesn’t intend to raise taxes for wealthy Americans or large businesses before the pandemic is over.
In follow-up answers to senators, Yellen also indicated she would not attempt to revive the Federal Reserve’s expired emergency lending programs. The Treasury and Fed jointly managed them last year, and the Trump administration ended them in a move that sparked fierce Democratic criticism.