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Treasury Secretary Steven Mnuchin said he wants the federal debt limit raised before lawmakers leave for a five-week break in August, but failure to do so won’t lead to a risk of default.
Financial markets would be comforted by early action on the congressionally set limit, instead of the last-minute brinkmanship often seen on the issue, Mnuchin said while appearing before a House Appropriations subcommittee June 12.
“If, for whatever reason, Congress does not act before August, we do have backup plans that we can fund the government,” Mnuchin said. “So I want to make it clear that that is not the time frame to create a serious problem.
“However, markets don’t want us to wait,” he said. “The sooner we do this, the better.”
Mnuchin’s comments came after another administration official, Mick Mulvaney, director of the Office of Management and Budget, recently hinted the Treasury Department could run out of room to borrow under the current debt limit as early as September.
Mnuchin declined to give an estimate of exactly when the Treasury was most likely to hit the limit, though outside observers have said sometime in October or November is likely.
“I am comfortable saying we can fund the government through the beginning of September. I would prefer not to give a range at this time,” Mnuchin said. “But, obviously, if we don’t fund the government, we don’t raise this beforehand, I will be providing updated numbers based upon how revenues come in.”
Earlier in the day, the Bipartisan Policy Center (BPC) reiterated its projection that the “X date"—the date on which Treasury would be unable to pay all of the government’s financial obligations—would fall sometime in October or November. That’s the same window that the BPC had projected before the April tax receipts, which are a crucial factor in the government’s fiscal picture.
“Federal revenues have thus far grown slower than projected for the year by the Congressional Budget Office, but the underperformance has not been large enough for BPC to change its ‘X Date’ range at this time,” BPC analysts Shai Akabas and Tim Shaw wrote.
“BPC always emphasizes that its projections cannot anticipate major economic or legislative changes. If the revenue trend seen in recent months becomes more pronounced into the summer, it could move our ‘X Date’ projection range in an earlier direction,” the pair wrote.
They cited Oct. 2 as a “particularly risky day” because a large payment to a military retirement trust fund is due then.
The BPC analysis is close to that of Lou Crandall, chief economist with Wrightson ICAP, an analytical firm.
“Earlier in the spring, we thought the likely window for the drop-dead date ran from the beginning of October to early November. As of last week, we have narrowed that forecast window to just the month of October,” Crandall wrote in a weekly note for clients.
In a related development, the Treasury Department said June 12 the government ran a deficit of $88.4 billion in May, close to the $87 billion that had been forecast earlier by the nonpartisan Congressional Budget Office (CBO). The May shortfall brought the fiscal year-to-date deficit to $432.9 billion.
While the year-to-date budget deficit was lower than the $405.4 billion shortfall seen in the same period in fiscal 2016, the CBO said June 7 the difference is mostly due to differences in the timing of certain payments between the two periods.
“If not for those shifts, the deficit in the first eight months of fiscal year 2017 would have been $68 billion larger than the one recorded for the same period last year,” the CBO said.
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