In a letter to the House, Yellen said that while it was difficult to give a specific estimate, the Treasury’s cash supplies would “most likely” be exhausted at some point in October.
This would result in a US default.
“A delay that calls into question the federal government’s ability to meet all its obligations would likely cause irreparable damage to the US economy and global financial markets,” Yellen said in the letter.
“We have learned from past debt limit impasses that waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States.”
Wall Street edged lower overnight as concerns mounted over the country’s recovery.
Jeffrey Halley, senior market analyst, Asia Pacific at OANDA, said: “Given the polarised nature of US politics these days, you would not bet against a serious game of blink developing between the two sides, and we have not even got to President Biden’s $3.5trn packages yet.
“We have a lot of uncertainty pulling markets in both directions with no clear theme developing and plenty of risks circling. It is no surprise, therefore, that investors have pushed equities slightly lower.”
However, Halley added that the primary beneficiary of a move to safety has been the US dollar, which has staged an impressive comeback.
“US equity markets could easily drop 10% and still be in a rampant bull market, so that is not concerning me much,” he said. “Perhaps this month’s FOMC will provide some much-needed clarity on the Fed taper; I will not be holding my breath, though. I can see September typified by danger when overtaking, choppy range-trading ahead.”