Treasury Secretary Janet Yellen announced that the U.S. is expected to reach its borrowing limit by mid-January, prompting the implementation of “extraordinary measures” to prevent a federal default.
These measures will provide Congress with several months to pass legislation to raise the debt ceiling before they are exhausted.
A 2023 agreement suspended the U.S. debt ceiling until January 1, 2025, with a new multitrillion-dollar borrowing limit set to take effect on January 2. However, Treasury Secretary Janet Yellen informed congressional leaders in a letter on Friday that a scheduled redemption of $54 billion in securities on January 2 would temporarily lower the federal debt, giving the Treasury a brief extension.
“Treasury currently expects to reach the new limit between January 14 and January 23, at which point extraordinary measures will need to begin,” Yellen stated. “I respectfully urge Congress to act promptly to safeguard the full faith and credit of the United States.”
Earlier this month, President-elect Donald Trump urged Congress to suspend the borrowing limit until January 2027. However, the proposal was rejected by a coalition of Republican fiscal conservatives and Democrats, who view the debt ceiling as an important tool for negotiating spending cuts. House Republicans are considering raising the debt limit in a party-line bill that ties the increase to priorities like enhanced border enforcement and extending expiring tax cuts, though no final plan has been agreed upon.
Janet Yellen is expected to step down as Treasury Secretary on January 20, with Scott Bessent, President-elect Trump’s nominee, poised to take over following confirmation.
Raising the debt limit does not authorize new spending but permits the Treasury to issue additional debt to cover expenses already approved by Congress.
Extraordinary measures, combined with incoming tax revenues, typically provide Congress with several months to extend the debt ceiling, either by setting a new date or a higher limit. Analysts predict the Treasury could exhaust its options by this summer. Without congressional action, the U.S. risks defaulting on its debt—a scenario that has unsettled markets during past debt-limit standoffs.
Historically, extraordinary measures have included redeeming certain investments tied to civil-service retirement funds and suspending new investments in these and other funds. The Treasury has assured that once a debt-ceiling increase is enacted, affected funds are fully restored.
U.S. debt limit to be reached in mid-January
The U.S. Treasury Department is expected to implement accounting measures by mid-January to remain within the federal debt limit, Treasury Secretary Janet Yellen stated in a letter to House Speaker Mike Johnson and other congressional leaders on Friday.
Temporary relief is anticipated on January 2, when outstanding debt is projected to decrease by $54 billion due to the scheduled redemption of securities from a federal trust fund.
“On January 2, 2025, the new debt limit will be set to match the amount of outstanding debt,” Treasury Secretary Janet Yellen wrote.
She indicated that the limit is expected to be reached between January 14 and 23, prompting the Treasury to implement accounting maneuvers to ensure the government remains funded.
Last week, the U.S. Senate passed a spending bill on Saturday to fund the government through mid-March, avoiding a shutdown. President Joe Biden signed the bill into law.
‘Extraordinary Measures’ Will Be Needed to Avoid Default
Treasury Secretary Janet L. Yellen notified Congress on Friday that if lawmakers fail to raise or suspend the nation’s debt limit by January 14, she will likely need to implement “extraordinary measures” to prevent a U.S. debt default.
Yellen’s warning comes during a politically charged period, as Republicans prepare to assume control of Congress next month. President-elect Donald J. Trump has already urged lawmakers to abolish the debt limit ahead of his plans to pursue new tax cuts and other spending initiatives.
The debt limit was last suspended in June 2023 following intense negotiations over federal spending, work requirements for government benefits, and Internal Revenue Service funding. That suspension will expire on January 2, requiring the Treasury to use extraordinary measures to ensure the federal government can continue meeting its financial obligations.
These extraordinary measures involve temporary accounting adjustments, such as halting certain investments in retirement savings plans for government employees and health benefit funds for retired postal workers, to avoid surpassing the borrowing limit.
The United States relies on borrowing to meet its financial obligations, including funding social safety net programs, paying interest on the national debt, and covering salaries for armed forces members. If the debt limit is not raised, the government will soon be unable to fulfill many of these payments, including those owed to investors holding government debt.
“I respectfully urge Congress to act to protect the full faith and credit of the United States,” Treasury Secretary Janet Yellen wrote in a letter on Friday.
Yellen noted that while the exact timing remains uncertain, extraordinary measures to prevent a default would likely need to be implemented between January 14 and January 23. These measures typically involve limiting certain federal investments to create temporary fiscal flexibility.
As lawmakers debated a government spending bill last week, President-elect Donald Trump complicated the discussions by urging Congress to raise or eliminate the debt limit entirely. For years, Republicans have used the debt limit as a bargaining tool to demand spending cuts from Democrats, making Trump’s proposal a challenging pivot for his party.
Yellen has previously criticized the debt limit, calling it “destructive” and advocating for its removal. Her predecessor, Steven T. Mnuchin, expressed similar views in 2017, labeling it a “somewhat ridiculous concept” that fails to control spending.
Trump, who has also questioned the necessity of the borrowing cap, recently referred to it as the “Debt Ceiling guillotine” and urged Congress to extend or abolish it before his administration begins.
The national debt now exceeds $36 trillion—an increase of approximately $5 trillion since the debt ceiling was last suspended in 2023. When the limit is reinstated on Thursday, it will automatically adjust to include the debt accumulated during the suspension.
According to the Bipartisan Policy Center, the so-called “X-date,” when extraordinary measures will no longer suffice and the U.S. could default, is expected to occur this summer.