The Congressional Budget Office forecast found that, "if the debt limit remains unchanged, there is a significant risk that at some point in the first two weeks of June, the government will no longer be able to pay all of its obligations."
The updated forecast brings forward the so-called "X-date" -when the U.S. will run out of money to pay for existing financial obligations - from July to June, adding pressure on Democrat and Republican leaders to find common ground on raising the US spending cap to avert a damaging default.
The CBO forecast found that, "if the debt limit remains unchanged, there is a significant risk that at some point in the first two weeks of June, the government will no longer be able to pay all of its obligations."
Such a move could lead the U.S. to default on its debt and delay payments for government activities, the CBO report said, with potentially disastrous impact on the global economy.
"Those actions could result in distress in credit markets, disruptions in economic activity, and rapid increases in borrowing rates for the Treasury," the CBO report found.
- Divisions remain -
Lawmakers remain sharply divided over the debt ceiling, with Republicans in Congress insisting that Biden agree to significant budget cuts in exchange for support to lift the limit before the country runs out of money to pay its existing bills.
Democrats have been calling for a "clean" increase of the borrowing limit, accusing Republicans of using extreme tactics to push their political agenda ahead of the deadline.
The updated CBO forecast will likely add to the pressure on senior Congressional leaders to reach a compromise to raise the debt.
Crunch talks between U.S. President Joe Biden and senior Republicans which had been scheduled for Friday have been postponed until early next week to allow staff to continue working, the White House said Thursday.
"The staff has met the last two days, we think it's productive for the staff to meet again," said Kevin McCarthy, the Republican speaker of the House of Representatives.
With the cliff-edge fast approaching, Biden suggested earlier this week that he may cancel a planned trip to Asia if ongoing talks do not yield a breakthrough on raising the debt ceiling.
He also refused to rule out invoking the 14th amendment to override a U.S. default, though such a move would be sure to run into legal challenges and could spook already-nervous financial markets.