Debt limit will hit by September, federal forecasters predict
The federal government will officially run out of cash between July and September of this year, the Congressional Budget Office predicted Wednesday — which could put the apex of the debt limit standoff right in the middle of lawmakers' August recess.
The new prediction heightens pressure on President Joe Biden and congressional leaders to strike a compromise that prevents the U.S. from defaulting on its loans this summer. The independent budget office cautioned that the actual so-called X-date, when the Treasury Department can no longer pay interest on its $31 trillion-plus debt, will depend on the flow of federal money in and out of the government over the next few months.
“That's not very far off,” Sen. John Neely Kennedy (R-La.) said this week about a late-summer breaking point for the debt limit. “And that's all the more reason for the president to sit down with my colleagues in the House and say: 'What can we come up with?'”
Once tax payments roll in come April, forecasters will be able to narrow the debt-limit time frame even further.
Biden and Speaker Kevin McCarthy have made little outward progress on negotiations during the first month of the Republican-controlled House, despite already meeting once to discuss the nation’s borrowing limit. The GOP leader is still demanding huge spending cuts in exchange for lifting the borrowing limit, while the president has refused to use the debt ceiling as a bargaining chip.
And the closer the nation gets to the point of default, the more skittish Wall Street investors are expected to become, potentially stunting stock market gains over the summer. There is also a risk that the U.S. credit rating could be downgraded if cross-party talks drag on too long, as occurred during the 2011 negotiations to raise the debt limit — which could, in turn, batter the global economy.
“If you screw around with this thing, you’re looking at interest rates going up,” Sen. Jon Tester (D-Mont.) said. “If you actually default, you’re looking at a depression.”
Treasury Secretary Janet Yellen has previously said the government can keep meeting its financial obligations through at least early June, likely a conservative estimate aimed at prodding congressional leaders into action before a stalemate endangers the nation’s credit rating, or worse.
Further complicating matters, Republicans aren't even in agreement on where they want cuts. Some are pushing for limits on discretionary spending similar to the restraints Congress imposed more than a decade ago, when the GOP faced off with the Obama administration over the debt ceiling. But Republicans remain divided on other questions, such as whether to slash the Pentagon's budget.
“We need to pick a fight that unites 222 Republicans,” said Rep. Matt Gaetz (R-Fla.), who has floated work requirements for Medicaid recipients as a possible path forward. “I would love to hold out a debt limit vote for the border or abolishing agencies that I think have been weaponized against the people. But the reality is — we need a unified strategy.”
Across the aisle, Democrats are pushing the GOP to outline its proposed spending cuts in detail. They argue that House Republicans don't have enough support from within their conference to coalesce around a plan, let alone get the Democratic-led Senate and White House to sign off on any spending concessions.
Policy veteran Lael Brainard, who Biden named to the National Economic Council this week, will play a key role in navigating the debt-ceiling debate on behalf of the White House. Congressional Democrats have said they hope she will be able to help them break through with GOP colleagues.
“She gets the intersection of policy and the political process,” Senate Finance Chair Ron Wyden (D-Ore.) said about Brainard. “I always, always say, particularly in an election year: ‘Well, what about the politics? Best politics is good policy.’ And Lael Brainard gets that.”
Still, GOP lawmakers are skeptical so far. House Financial Services Chair Patrick McHenry (R-N.C.) called Brainard’s appointment “misguided,” and other Republicans have expressed doubts about her expertise.
“She seems to be a nice enough person,” said Kennedy. “But I just don't think she understands — either macro and certainly not micro — economics.”
Nancy Vu contributed to this report.
