The ongoing political crisis surrounding the US borrowing limit is leading to increased borrowing costs for the government, according to Treasury Secretary Janet Yellen. In a speech before the Independent Community Bankers of America, Yellen highlighted the impact of the impasse on investor sentiment and the rising debt burden on American taxpayers.
Yellen noted that investors have become more reluctant to hold government debt that matures in early June, as the political uncertainty continues. This reluctance has caused the rate on one-month US Treasury bonds to rise to 5.74 percent, the highest level in at least 20 years and significantly higher than the Federal Reserve's benchmark rate. Comparatively, the rate was 3.29 percent in mid-April.
As a result of the rising rates, the price of the bonds has dropped, necessitating increased borrowing by the US government. Yellen emphasized that the situation could lead to a default on the country's debts as early as June 1 if an agreement on raising the federal borrowing limit is not reached.
The current standoff between Republicans, who control the House of Representatives, and Democratic President Joe Biden centers around the demand for spending cuts as a condition for lifting the debt ceiling. Negotiations are underway, with Biden, House Speaker Kevin McCarthy, and other congressional leaders aiming to find a resolution.
Yellen expressed concern about the negative consequences of the crisis, as businesses are forced to divert their attention to planning for the potential risk of a US default instead of focusing on long-term investments. She urged Congress to address the debt limit promptly to alleviate the situation.
