Yellen warns of recession if US defaults, says Schumer and Pelosi need to figure out how to raise ceiling

Treasury Secretary Janet Yellen in a Tuesday interview refused to explicitly oppose raising the debt ceiling through budget reconciliation, partially contradicting Senate Majority Leader Chuck Schumer's stance as she warned of a recession if the U.S. defaults.

Congress has until Oct. 18 to raise the debt ceiling. That is when Yellen says the Treasury Department's "extraordinary measures" to pay the government's bills despite the expiration of a debt ceiling suspension in July will run out. 

The treasury secretary said in a CNBC interview Tuesday that failure to do so would be disastrous. 

"It would be catastrophic to not pay the government's bills for us to be in a position where we lack the resources to pay the government's bills," Yellen said on CNBC. 

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"It's really up to Speaker Pelosi and Leader Schumer to figure out how to get this done in Congress," Yellen also told CNBC Tuesday. "What I can tell you is that it's utterly essential that this be done." 

Asked further if Yellen would support raising the debt ceiling via reconciliation – the way Republicans have been insisting for months that Democrats should do it – Yellen refused to take it off the table. 

"I support getting it done," Yellen told CNBC before emphasizing that "this has long been done on a bipartisan basis." 

"I believe that both parties have a responsibility to get this done," she added on CNBC. "And it's really up to the Congress to decide how to manage it. But I believe it must be done."

Budget reconciliation is a process by which Congress can bypass the Senate filibuster on fiscal bills. Democrats used it to circumvent Republicans and pass their COVID-19 relief bill earlier this year. They're using it again for their massive social spending bill. 

Yellen's statement follows comments from Sen. Joe Manchin, D-W.Va., on Monday that Democrats should not "rule out anything" including reconciliation because "we just can't let the debt ceiling lapse." 

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Manchin acknowledged that raising the debt ceiling via reconciliation would be politically painful for Democrats, but he said that it is necessary to ensure the debt ceiling gets increased. He dismissed the idea of nuking the legislative filibuster to raise the debt ceiling. 

The comments from Yellen and Manchin indicate that at least some Democrats are getting nervous about Republicans' stance that they won't help increase the debt ceiling in any way. And they undermine the stance Schumer, D-N.Y., has taken that Democrats won't consider raising the debt ceiling through reconciliation. 

The battle will come to a head on Wednesday when the Senate will take a cloture vote on a House-passed bill to increase the debt ceiling. Republicans are expected to filibuster it, keeping it short of the 60-vote threshold needed to go to a final vote. 

After that it is highly unclear how Democrats plan to increase the debt ceiling if Republicans do not cave from the stance they've taken publicly since July. 

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Senate Majority Whip Dick Durbin, D-Ill., said Monday evening, "I believe so," when asked if using reconciliation to raise the debt ceiling remains off the table. 

"The consistent message from our caucus is that would take additional time, series of votes and delay, which is exactly what McConnell wants. He knows the outcome whether he agrees to it on the floor now or puts us through this labor exercise," Durbin added. 

Republicans, meanwhile, continue to dig in on their stance that Democrats must raise the debt ceiling on their own. 

"Since mid-July, Republicans have clearly stated that Democrats will need to raise the debt limit on their own," Senate Minority Leader Mitch McConnell, R-Ky., said in a letter to President Biden Monday. "We have no list of demands. For two and a half months, we have simply warned that since your party wishes to govern alone, it must handle the debt limit alone as well." 

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It's not clear which side will cave – or if either side will cave – as the United States lurches toward potential economic crisis. 

The fact is if either party decides it wants to ensure the debt ceiling is increased, it can. Republicans could assure they won't filibuster a debt ceiling bill, or Democrats could proceed under reconciliation to pass the increase without GOP help. 

But neither party has decided to act as the U.S. is less than two weeks away from defaulting. 

FOX Business' Jason Donner and Chad Pergram contributed to this report.