2023 Debt Ceiling Crisis: Events and Implications

Insights for What’s Ahead

• The US debt ceiling crisis is a repeated event, but the stakes are higher this time given political divides in Washington and outsized federal debt-to-GDP.
• The limit was reached in January, but the US Treasury has avoided default by engaging in extraordinary measures to raise cash. Cash may run out as soon as June 1, 2023.
• Policy options include repealing, raising, suspending, or default. Repeal is unlikely. Raising or suspension are more likely options. Default is a serious risk.
• Policy options include Congress and the Administration agreeing on legislation to prevent default. This might include cuts to federal government spending in exchange for raising or suspending the limit.
• Default on US sovereign debt would likely cause an immediate financial crisis, and recessions in the US and globally, absent use of a variety of unconventional options.
• There is disagreement over options in the case of no action on the limit, but many are considered “gimmicks.”
• Over the long term, the crisis and/or default would raise borrowing costs in the US, weaken economic growth, and erode the US’ influence internationally.
• Businesses should expect extreme financial market volatility, and potential recession in the case of default.