U.S. Treasury Warns of August Debt Limit Exhaustion, Urges Congress to Act by July

U.S. Treasury Secretary Scott Bessent has warned that the U.S. government will exhaust its debt limit by August, urging Congress to raise or suspend the debt ceiling by mid-July to maintain the country's creditworthiness. In a letter to Congress, Bessent stated that after reviewing the fiscal income from the April tax season, the government's cash and extraordinary measures will likely be depleted by August, coinciding with Congress's recess. He called on lawmakers to act before the July recess to prevent a potential default.

The current statutory debt limit stands at $36.1 trillion, reached in early January. Since then, the Treasury Department has relied on extraordinary measures to avoid a federal debt default. By April 30, most of these measures had already been implemented. Analysts predict that the Treasury could face a cash shortfall between August and October, making it unable to meet all federal obligations on time. The Congressional Budget Office (CBO) also anticipates that the government will run out of funds by late summer, between August and September.

Republicans in Congress are working on legislation to raise the debt limit by approximately $5 trillion. However, the primary goal of this bill is to extend and expand the tax cuts implemented by Donald Trump in 2017. Negotiations on this legislation could take several more months to complete. Bessent urged Congress to finalize the legislation by July 4, but Senate Majority Leader John Thune described this timeline as more of an aspiration than a realistic goal. If Republicans fail to pass the legislation by the deadline, they may need to negotiate with Democrats, potentially giving the latter some leverage over Trump's policy agenda.

Bessent has repeatedly pledged that the U.S. will avoid a debt default. He emphasized this stance during his Senate confirmation hearing in January and reiterated it during a House Appropriations Committee hearing this week. "The U.S. government will not default, and the Treasury will not use any gimmicks. We will ensure that the debt ceiling is raised," he stated. Trump had previously expressed interest in completely abolishing the debt ceiling mechanism, but many fiscal conservatives within the Republican Party oppose this idea and have vowed not to support an increase in the limit.

Bessent also noted that the federal budget is currently on an unsustainable path. He acknowledged that it is difficult to predict when financial markets might "rebel" against the high debt levels. A crisis, he warned, could manifest as a sudden economic halt due to the disappearance of credit. He is committed to preventing such a scenario.