The US Congress was pressured by the statement of US Treasury Secretary Janet Yellen that the government will run out of money by October 18. She said the Congress should quickly raise the debt ceiling to avoid a credit crunch.
"We know from previous debt limit impasses that waiting until the last minute can cause serious harm to business and consumer confidence, raise borrowing costs for taxpayers, and negatively impact the credit rating of the United States for years to come. Failure to act promptly could also result in substantial disruptions to financial markets, as heightened uncertainty can exacerbate volatility and erode investor confidence," Yellen explained.
As early as last week, the Treasury secretary already warned the Congress of a potential government shutdown if it fails to pass legislation to raise the debt ceiling. She said refusing to do so could lead to a financial crisis.
Fed Chairman Jerome Powell also called on the Congress to raise the debt limit to avoid default.
Unsurprisingly, the news provoked sell-offs in some Treasury securities maturing within the next month, with monthly Treasury bill yields surging to their highest levels in months.
Investors have generally been of the opinion that the congressional standoff on this issue will be resolved before default occurs. Goldman Sachs said it is "the riskiest debt limit in a decade."
