U.S. Indices (SPX, NDX, RUT, SPX) closed in the red on Friday following comments from Treasury Secretary Yellen. Treasury Secretary Janet Yellen has warned that the United States will hit its statutory debt ceiling around the middle of January, a development she said will prompt the Treasury to resort to “extraordinary measures” to prevent the government from defaulting on its obligations. She noted that the Fiscal Responsibility Act of 2023 temporarily suspended the debt ceiling through Jan. 1, 2025, enabling lawmakers to avert default during contentious budget negotiations. A day after that deadline—on Jan. 2—a new debt limit will be set based on the total amount of outstanding debt subject to the statutory limit as of the end of Jan. 1. Yellen noted that the debt is projected to temporarily decrease by $54 billion on that date due to scheduled Medicare trust fund redemptions, providing a brief reprieve before extraordinary measures become necessary. “Treasury currently expects to reach the new limit between January 14 and January 23, at which time it will be necessary for Treasury to start taking extraordinary measures.” Yellen wrote. Extraordinary measures, often described as accounting manoeuvres, allow the Treasury to free up cash and delay default. These measures, however, are a short-term solution. Once exhausted, they leave the government unable to meet its financial obligations without congressional intervention. Yellen emphasised the urgency of action, warning that a failure to address the debt ceiling would severely damage the nation’s economic credibility. “I respectfully urge Congress to act to protect the full faith and credit of the United States,” she wrote. Yellen’s warning comes as the national debt has climbed to a staggering $36 trillion, driven by decades of government spending outpacing tax revenue under both Republican and Democratic administrations. High inflation that soared after the pandemic led the Federal Reserve to hike interest rates, increasing borrowing costs and debt service payments. The Committee for a Responsible Federal Budget (CRFB) recently noted that interest payments on America’s public debt have nearly tripled since 2020 and in 2024 were higher than spending on Medicare and national defense. The nonprofit estimated that interest payments will continue climbing over the next decade and beyond, exceeding Social Security spending by 2051 to become the top expense. President-elect Donald Trump has proposed eliminating the debt ceiling altogether, or at least extending it through 2029, a move that would give his incoming administration more breathing room by avoiding repeated debt cap standoffs on Capitol Hill. U.S. Equity Futures are lower this morning on the back of Yellen’s letter to Congress. Elsewhere, Oil closed 1.41% higher while Gold was flat.
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