Janet Yellen, the US treasury secretary, has notified Congress that the US is projected to reach its debt limit on Thursday, 19 January, and will then resort to “extraordinary measures” to avoid default.

In a letter to House and Senate leaders on Friday, Yellen said her actions will buy time until Congress can pass legislation that will either raise the nation’s $31.4tn borrowing authority or suspend it again for a period of time.

She urged lawmakers to act quickly to raise the debt ceiling to “protect the full faith and credit of the United States”.

“Failure to meet the government’s obligations would cause irreparable harm to the US economy, the livelihoods of all Americans and global financial stability,” she said.

Republicans now in control of the House have threatened to use the debt ceiling as leverage to demand spending cuts from Democrats and the Biden administration. This has raised concerns in Washington and on Wall Street about a bruising fight over the debt ceiling this year that could be at least as disruptive as the protracted battle of 2011, which prompted the brief downgrade of the US credit rating and years of forced domestic and military spending cuts.

The Washington Post reported late on Friday that House Republicans had prepared an emergency plan for breaching the debt limit. The proposal, which was in the preliminary stages of being drafted, would direct the treasury department to prioritize certain payments if the US hits the debt ceiling, according to the newspaper.

The White House said on Friday after Yellen’s letter that it will not negotiate over raising the debt ceiling.

“This should be done without conditions,” White House spokesperson Karine Jean-Pierre told reporters. “There’s going to be no negotiation over it.”

The new House speaker, Kevin McCarthy, told reporters in his first press conference that he had a “very good conversation” with Biden about the coming debt ceiling debate. “We don’t want to put any fiscal problems to our economy and we won’t, but fiscal problems would be continuing to do business as usual,” he said.

“We’ve got to change the way we are spending money.”

The proposal from House Republicans reported by the Washington Post would call on the Biden administration to make only the most critical federal payments if the treasury department comes up against the statutory limit on what it can legally borrow. The plan will call on the department to keep making interest payments on the debt, the newspaper reported, citing sources.

House Republicans’ payment prioritization plan may also stipulate that the treasury department should continue making payments on social security, Medicare and veterans benefits, as well as funding the military, the newspaper added.

Yellen said that while the treasury can’t estimate how long the extraordinary measures will allow the US to continue to pay the government’s obligations, “it is unlikely that cash and extraordinary measures will be exhausted before early June.”

The treasury department first used extraordinary measures in 1985 and at least 16 times since, according to the Committee for a Responsible Federal Budget, a fiscal watchdog. Those measures include divesting some payments, such as contributions to federal employees’ retirement plans, in order to provide some headroom to make other payments that are deemed essential.

Past forecasts suggest a default could instantly bury the country in a deep recession, right at a moment of slowing global growth as the US and much of the world face high inflation because of the pandemic and Russia’s invasion of Ukraine. The financial markets could crash and several million workers could be laid off, and the aftershocks would be felt for years.

Shai Akabas, director of economic policy at the Bipartisan Policy Center, told reporters Friday: “This is not the time for panic, but it’s certainly a time for policymakers to begin negotiations in earnest.”

“Most policymakers agree that we have a major fiscal challenge as a country, our debt is unsustainable,” he said. “There’s no reason why we couldn’t agree on measures to improve our fiscal outcome, and also ensure that we are paying all of our bills in full and on time.”