Tag Archives: Treasury Secretary Janet Yellen

Biden says Republican stonewalling on debt ceiling risks U.S. default

By Susan Cornwell, Richard Cowan and Jarrett Renshaw

WASHINGTON (Reuters) -President Joe Biden said on Monday the federal government could breach its $28.4 trillion debt limit in a historic default unless Republicans join Democrats in voting to raise it in the two next weeks.

Senate Republicans, led by Minority Leader Mitch McConnell, have twice in recent weeks blocked action to raise the debt ceiling – saying they do want action but will not help. Republicans say Democrats can use a parliamentary maneuver known as budget reconciliation to act alone. Top Democrats have rejected that approach.

“Raising the debt limit comes down to paying what we already owe … not anything new,” Biden said at a White House news conference.

Asked if he could guarantee the United States won’t breach the debt limit, the president answered: “No I can’t. That’s up to Mitch McConnell.” He said he intended to speak with McConnell about the matter.

In a high-stakes standoff over parliamentary maneuvers. McConnell for months has been saying that Democrats should use a process called “budget reconciliation” to get around the Senate’s filibuster rule, which requires 60 of 100 members to agree to pass most legislation. Senate Majority Leader Chuck Schumer, a Democrat, has rejected that approach and Biden on Monday pleaded not to use the filibuster to block action.

“Just get out of the way,” Biden told Republicans. “If you don’t want to help save the country, get out of the way so you don’t destroy it.”

Late last month the U.S. House of Representatives passed and sent to the Senate a bill to suspend the limit on Treasury borrowing through the end of 2022.

Schumer on Monday said that later this week the Senate would vote for a third time on a measure to suspend the debt limit.

Treasury Secretary Janet Yellen last week warned lawmakers that the United States government was close to exhausting its federal borrowing capabilities by about Oct. 18.

Failure to act could have catastrophic economic consequences. Moody’s last month warned that it could cause a nearly 4% decline in economic activity, the loss of almost 6 million jobs, an unemployment rate of close to 9%, a sell-off in stocks that could wipe out $15 trillion in household wealth and a spike in interest rates on mortgages, consumer loans and business debts.

Democrats note that they voted to raise the debt limit during Republican Donald Trump’s administration even though they opposed deep tax cuts that added to the debt.

Biden said the United States racked up nearly $8 trillion in new debt over Trump’s four years in office, more than one quarter of the entire debt outstanding.

“Republicans in Congress raised the debt three times” under Trump, he said, with Democratic support.

STOCKS SLIDE

Concerns over the debt ceiling contributed to Monday’s drop in the stock market. Wall Street’s main indexes tumbled on Monday as investors shifted out of technology stocks in the face of rising Treasury yields, with concerns about U.S.-China trade, Taiwan and the debt ceiling in the forefront.

McConnell stuck to his guns in remarks to the Senate, and in an open letter to Biden on Monday.

“The majority needs to stop sleepwalking toward yet another preventable crisis. Democrats need to tackle the debt limit,” McConnell said on the Senate floor.

In a letter to Biden, McConnell said that the Democrats do not need Republican cooperation to pass a bill to raise the debt ceiling. Democrats have had nearly three months notice from Republicans about their position on the matter, McConnell wrote.

McConnell is known for standing his ground once he takes a controversial position. For example, in 2016 he refused to allow a Senate hearing on then-President Barack Obama’s nomination of Merrick Garland to a seat on the Supreme Court – holding the seat open until after Trump assumed office nearly a year later.

Schumer said the Senate will have to stay in session through the weekend and possibly into a planned recess next week if no progress is made on raising the debt limit.

Last week, the Senate’s parliamentarian ruled that Schumer could use the reconciliation process to bring a debt limit bill to the Senate floor, according to a source familiar with the ruling.

According to the parliamentarian, doing so would not jeopardize Democrats’ efforts to bring a second bill to the Senate floor under reconciliation. That is the multitrillion-dollar bill embracing Biden’s domestic agenda expanding social services and addressing climate change that Democrats are developing.

(Reporting by Susan Cornwell, Richard Cowan and Jarrett Renshaw; additional reporting by David Morgan, Jeff Mason, Steve Holland, Diane Bartz and Eric Beech; Editing by Scott Malone, Mark Porter and Grant McCool)

Oil falls as storm-hit U.S. supply trickles back into market

By Stephanie Kelly

NEW YORK (Reuters) -Oil prices fell on Friday as energy companies in the U.S. Gulf of Mexico restarted production after back-to-back hurricanes in the region shut output.

Both Brent and U.S. crude benchmarks were on track for weekly gains of 3.2% and 3.3%, respectively, owing to the recent supply tightness due to the hurricane outages.

Brent crude futures fell 42 cents to $75.25 a barrel by 12:48 p.m. EDT (1648 GMT). U.S. West Texas Intermediate (WTI) crude futures fell 60 cents to $72.01 a barrel.

Friday’s slump came after five straight sessions of rises for Brent. On Wednesday, Brent hit its highest since late July, and U.S. crude hit its highest since early August.

“The reason oil prices reached such highs in the last few days was clearly supply disruptions and drawdowns in inventories, so now that U.S. oil production is returning, oil as expected trades lower,” said Nishant Bhushan, Rystad Energy’s oil markets analyst.

Gulf Coast crude oil exports are flowing again after hurricanes Nicholas and Ida took out 26 million barrels of offshore production. Restarts continued with about 28% of U.S. Gulf of Mexico crude output offline, Reuters reported on Thursday.

The dollar climbed to a multi-week high on Friday, making dollar-denominated crude more expensive for those using other currencies. The dollar got a boost from better-than-expected U.S. retail sales data on Thursday.

U.S. consumer sentiment steadied in early September after plunging the month before to its lowest level in nearly a decade, but consumers remain worried about inflation, a survey showed on Friday.

(Reporting by Stephanie Kelly in New York; additional reporting by Julia Payne in London, Sonali Paul in Melbourne and Roslan Khasawneh in Singapore; Editing by David Goodman, Louise Heavens and David Gregorio)

Debt ceiling impasse? Fed’s ‘loathsome’ game plan for the ‘unthinkable’

By Ann Saphir

(Reuters) – Treasury Secretary Janet Yellen says failure to raise the U.S. debt limit could lead to the unthinkable: a default on government payment obligations. That’s an outcome the White House on Friday warned could plunge the economy into recession.

If the impasse in Congress over the $28.5 trillion debt limit isn’t resolved before an October deadline, what would the Federal Reserve – the backstop for U.S. financial markets as the lender of last resort – be prepared to do?

As it turns out, Fed Chair Jerome Powell may already have something of a game plan. The country faced a similar crisis over the debt limit in 2011 and again two years later, and at an unscheduled October 2013 meeting, Fed policymakers – including Powell, who was then a Fed governor, and Yellen, who was the Fed’s vice chair – debated possible actions in response.

The plan included a process for managing government payments, given the Fed’s expectation that Treasury would prioritize principal and interest but would make day-by-day decisions on whether to cover other obligations.

Changes to the Fed’s supervision of banks were also planned. Banks would be allowed to count defaulted Treasuries toward risk-capital requirements, and supervisors would work directly with any bank experiencing a “temporary drop in its regulatory capital ratio.” The U.S. central bank would also direct lenders to give leeway to stressed borrowers.

Policymakers also mapped out an approach to managing market strains and financial stability risks stemming from a technical default.

They readily agreed to some measures, including expanding ongoing bond purchases to include defaulted Treasuries, lending against defaulted securities and through the Fed’s emergency lending window, and conducting repurchase operations to stabilize short-term financial markets.

Other actions sketched out in briefing notes and during the meeting were more controversial, including providing direct support to money markets by buying defaulted Treasury bills, or simultaneously selling Treasuries that are not in default and buying ones that are.

Powell described these approaches as “loathsome.”

“The economics of it are right, but you’d be stepping into this difficult political world and looking like you are making the problem go away,” he said at the time.

Powell added, however, that he wouldn’t rule it out in a catastrophic situation, a point also made by several of his colleagues, including Yellen and John Williams, who at the time was San Francisco Fed president and is now head of the New York Fed.

(Reporting by Ann Saphir; Editing by Paul Simao)

White House warns of economic catastrophe without action on debt limit

WASHINGTON (Reuters) – The White House warned on Friday that a failure by the U.S. Congress to extend the debt limit could plunge the economy into a recession and could lead to cuts in critical state services.

The government faces an October deadline on the debt limit, after which it may not be able to pay all of its bills without congressional approval.

President Joe Biden, a Democrat, and his aides have been trying to broker a deal with Republicans to resolve a showdown over raising the $28.5 trillion federal borrowing limit.

The administration is warning lawmakers that the country risks a new financial crisis and a default on its payment obligations.

“Economic growth would falter, unemployment would rise, and the labor market could lose millions of jobs,” the White House said in a new fact sheet.

For months, Treasury Secretary Janet Yellen has urged Congress to act, saying cash and “extraordinary measures” being used to temporarily finance the U.S. government will run out in October.

But Republicans, who lost control of the White House in the 2020 election and do not hold the majority in the Senate or the House of Representatives, have balked and placed the potential crisis on Democrats’ shoulders.

“It’s absolutely unspeakable, unthinkable that we would allow the federal government to default on the obligations it has already made,” White House economic adviser Brian Deese told MSNBC on Friday.

“We’re confident that this is going to get done.”

(Reporting by Susan Heavey, Steve Holland and Trevor Hunnicutt; Editing by Raissa Kasolowsky, Chizu Nomiyama and Andrea Ricci)

Democrats will not raise debt limit in $3.5 trillion bill -Pelosi

WASHINGTON (Reuters) – Democrats will not include a provision to raise the federal government’s borrowing limit in a $3.5 trillion “reconciliation” spending measure they hope to pass this autumn, U.S. House Speaker Nancy Pelosi said Wednesday.

Pelosi said the $28.5 trillion debt limit must be raised, but told a news conference she would not say whether this would be included in a must-pass bill to keep the government running, expected at the end of September.

“I am not here to talk about where” the debt limit would be raised, “but it won’t be in reconciliation,” she told reporters. Democrats are currently crafting the reconciliation package, a sweeping social spending bill, and hope to pass it in the coming weeks.

Senior congressional Republicans have vowed not to vote for an increase of the debt limit, instead urging Democrats to pass it without their votes through the reconciliation maneuver. Failure to increase the limit could lead to a shutdown of the federal government – something that has happened three times in the past decade.

Treasury Secretary Janet Yellen on Wednesday again urged Congress to tackle the debt ceiling, saying it was unclear how long Treasury’s efforts to temporarily finance the government would last and citing ongoing economic worries over the pandemic.

The “most likely outcome is that cash and extraordinary measures will be exhausted during the month of October,” Yellen wrote in a letter to lawmakers.

Leaders of the Democratic-led Senate and House of Representatives are expected to force votes to lift the debt limit in late September.

Senate Majority Leader Chuck Schumer, speaking to reporters on Wednesday, also declined to say whether the debt limit will be included in what is called a continuing resolution that must be passed by the end of September to keep government operations funded.

Both Pelosi and Schumer noted that when Donald Trump was president, Democrats supported debt limit increases, and urged Republicans to back one now.

(Reporting by Susan Cornwell; Editing by Scott Malone and Andrea Ricci)

Biden’s tax hike, spending plans to boost profits, Yellen tells U.S. Chamber

By David Lawder

WASHINGTON (Reuters) -U.S. Treasury Secretary Janet Yellen tried to sell President Joe Biden’s $2.2 trillion corporate tax hike and infrastructure plans to the U.S. Chamber of Commerce on Tuesday, saying that the proposals will improve the profitability and competitiveness of American corporations.

Yellen told a Chamber online conference that the “American Jobs Plan” infrastructure investments would have a direct payoff to the American people, create jobs and simply “return the corporate tax rate toward historical norms.”

“We are confident that the investments and tax proposals in the Jobs Plan, taken as a package, will enhance the net profitability of our corporations and improve their global competitiveness. We hope that business leaders will see it this way and support the Jobs Plan,” she said.

Yellen is taking her pitch for Biden’s tax and spending plans directly to an organization that is deeply opposed to raising the corporate tax rate, which was cut to 21% from 35% by the Trump administration and Republicans in Congress in 2017. Biden is proposing to raise the rate to 28%, while negotiating a global minimum corporate tax with major economies.

CHAMBER NOT PERSUADED

Chamber CEO Suzanne Clark said after Yellen’s remarks that tax hikes would erect a barrier to economic recovery from the COVID-19 pandemic.

“The data and the evidence are clear, the proposed tax increases would greatly disadvantage U.S. businesses and harm American workers,” said Clark, who took over leadership of the influential business lobby group in March.

“The administration is right to champion infrastructure, and we want to be there with them to do that, but there are other ways to finance it,” she added.

The Chamber has favored more traditional means of infrastructure financing, such as increased fuel taxes and other user fees.

Biden’s proposal goes well beyond traditional infrastructure such as roads and bridges and proposes to invest in broadband networks, research and development, modernized schools and expanded child care to bring more women into the workforce.

Yellen said that the package will “make up for lost time” in investing in renewable energy technologies and protecting against cyber threats.

“The transition to a greener economy will provide a multi-decade boost to the economy, creating jobs along the way as the private sector participates in the development of new technologies, new investments, and the new products that will drive the global economic transformation.”

Yellen also said Biden’s American Families Plan will enhance education from early childhood to community college to help build a competitive workforce and fight childhood poverty. The plan would be financed by increases in tax rates for the wealthiest Americans and higher capital gains taxes for those earning more than $1 million a year.

She also said that in the areas of trade and investment, the Biden administration will fight for a level playing field and “confront adversaries who take advantage by ignoring or abusing rules and norms of behavior”.

(Reporting by David Lawder; Editing by Andrea Ricci)

Yellen says U.S. debt ceiling could pinch in summer

WASHINGTON (Reuters) – U.S. Treasury Secretary Janet Yellen said on Friday the nation could exhaust its ability to borrow this summer even if Treasury takes “extraordinary actions” to buy more time when the nation’s debt ceiling comes back into effect at the end of July.

Yellen told reporters at the White House that while the Treasury could extend its ability to borrow by employing special measures if Congress did not act to raise the debt ceiling, those steps might buy only a “very limited” amount of time.

“It is exceptionally challenging this time to try to figure out just how long those (extraordinary) measures are going to last in part because of higher and more volatile spending and revenue numbers associated with the state of the economy and the pandemic,” she said.

“We are concerned that there are scenarios that give (a) very limited amount of additional time to use extraordinary measures,” Yellen added. “There are scenarios in which some time during the summer” room would run out even after special measures were employed, she said.

(Reporting by Steve Holland; Writing by Tim Ahmann; Editing by Andrea Ricci)

Treasury’s Yellen: Interest rates may need to rise modestly

By Ann Saphir and Dan Burns

(Reuters) -U.S. interest rates may need to rise to prevent the economy from overheating as more of U.S. President Joe Biden’s economic investment programs come on line, U.S. Treasury Secretary Janet Yellen suggested in remarks released Tuesday.

“It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat, even though the additional spending is relatively small relative to the size of the economy,” she said in taped remarks to a virtual event put on by The Atlantic. “It could cause some very modest increases in interest rates to get that reallocation, but these are investments our economy needs to be competitive and to be productive (and) I think that our economy will grow faster because of them.”

Overall the programs, which include stepped-up spending on infrastructure, childcare and education, will make a “big difference” to inequality, Yellen said.

Republicans have criticized the proposed tax increases Biden expects to use to pay for his proposals, but Yellen said the effect of a change in marginal tax rates is “much less powerful in influencing growth in either direction,” adding that her aim is to make sure government deficits “stay small and manageable.”

(Reporting by Ann Saphir, Editing by Franklin Paul and Andrea Ricci)

Build America Bonds to be in Biden infrastructure plan, U.S. House Ways & Means chair says

By Karen Pierog

(Reuters) -Federally subsidized Build America Bonds will return as part of President Joe Biden’s $2 trillion-plus infrastructure package, the chairman of the House of Representatives Ways and Means Committee said on Thursday.

Richard Neal, a Democrat who will play a key role in shaping legislation for the plan, said he obtained assurances from U.S. Treasury Secretary Janet Yellen that the bonds, along with certain tax credit measures, will be included.

“(Yellen) said all of those issues will be in the president’s proposal and I intend to guard them in the committee,” Neal said at a press conference in Springfield, Massachusetts, carried by a local television station.

A spokesman for Yellen did not immediately respond to a request for comment.

Neal said his committee will hold hearings ahead of House Speaker Nancy Pelosi’s target for having the chamber vote on legislation by July 4.

The popular Build America Bond program was created under the Obama administration as part of an economic stimulus law allowing states, cities, schools, airports, mass transit agencies and others to sell for a limited time taxable debt with the federal government contributing 35% of interest costs.

Between April 2009 and when the authorization expired at the end of 2010, $181.5 billion of the so-called BABs were issued to fund construction projects aimed at helping the nation recover from the financial crisis.

While BABs on average have outperformed other fixed-income assets over the last 10 years, some past issuers said their return should include protection from across-the-board federal spending cuts that have reduced the federal subsidy on the bonds.

(Reporting By Karen Pierog; Editing by Franklin Paul and Dan Grebler)

Fed’s Powell tells lawmakers inflation risk remains low

WASHINGTON (Reuters) -Federal Reserve Chair Jerome Powell told U.S. lawmakers on Tuesday that a coming round of post-pandemic price hikes won’t get out of hand and fuel a destructive breakout of persistent inflation.

“We do expect inflation will move up over the course of the year,” but it will be “neither particularly large nor persistent,” Powell said in testimony before the House of Representatives Financial Services Committee after some members said they were concerned about rising prices.

“We have the tools to deal with that” if it becomes a problem, Powell said.

Powell was testifying alongside Treasury Secretary Janet Yellen as part of a hearing to ostensibly review the progress of the U.S. economic recovery from the coronavirus pandemic, and the effectiveness of the fiscal and monetary policies used to combat the crisis.

But it was marked by an early skirmish over possible infrastructure and tax increase plans being considered by the Biden administration.

Yellen, questioned about whether corporate or other tax increases could do more harm than good, said an infrastructure plan would target “spending that this economy needs to be competitive and productive,” but would require “some revenue raisers” to offset the cost.

“The Biden administration is not going to propose policies that hurt small businesses or Americans,” Yellen said.

The U.S. economic recovery is evolving faster than expected, but still faces risks from the coronavirus pandemic on one side and potential inflation on the other as massive fiscal support rolls through the system.

The federal response to the crisis, including spending of about $5 trillion and massive support from the central bank, set the stage for a rebound now taking hold as the COVID-19 vaccination program gains momentum and pandemic restrictions are lifted.

However, it remains unclear how quickly millions of still-unemployed workers will find their way back to jobs, whether the Fed can keep markets on an even keel amid rising prices and bond yields, and if initial progress against the pandemic can be sustained.

ECONOMIC OPTIMISM

In testimony released ahead of the hearing, Yellen repeated an optimistic view that the U.S. response, including the Biden administration’s $1.9 trillion relief package that was passed this month, could get the country back to full employment by next year.

“I am confident that people will reach the other side of this pandemic with the foundations of their lives intact. And I believe they will be met there by a growing economy. In fact, I think we may see a return to full employment next year,” Yellen said.

The current U.S. unemployment rate of 6.2% is far above the multi-decade lows of around 3.5% reached before the pandemic, and statistical surveys during the crisis may understate the true level. The economy is about 9.5 million jobs short of where it was in February 2020.

Still, Fed officials including Powell expect job growth to accelerate in coming months as life returns to normal and a wide variety of businesses, from restaurants to amusement parks, begin to reopen and re-staff their workforces.

“The recovery has progressed more quickly than generally expected and looks to be strengthening,” Powell said in his opening statement.

Yellen and Powell are scheduled to appear before the Senate Banking Committee on Wednesday.

(Reporting by Howard SchneiderEditing by Paul Simao)