Yellen reiterates debt default warning before Biden-McCarthy talks

Treasury Secretary Janet Yellen said new data reinforced an earlier warning that the US could default on its debts as early as June 1, ahead of crunch talks Tuesday between President Joe Biden and Republican leaders.

The Treasury has warned of "catastrophic" consequences if the US runs out of cash to pay its bills, which would leave it unable to pay federal workers and trigger a likely surge in interest rates with a huge impact for businesses and mortgage holders.

"We still estimate Treasury will likely no longer be able to satisfy all of the government's obligations if Congress has not acted to raise or suspend the debt limit by early June, and potentially as early as June 1," she wrote on Monday in a letter to the Republican speaker of the House of Representatives, Kevin McCarthy.

The talks have a lot of ground to cover, with the two parties still sharply divided on the terms under which they will agree to lift the government's borrowing cap to pay for existing spending commitments.

Republicans continue to insist that Biden agree to significant spending cuts in exchange for their support to raise the debt ceiling, while Democrats have been calling for a "clean" increase of the borrowing limit with no strings attached.

They have accused Republicans of using extreme tactics to push their political agenda ahead of the so-called "X-date" -- the point at which the United States will be unable to meet its financial obligations.

The nonpartisan Congressional Budget Office has forecast that the X-date could be reached by June 15.