Raise the Roof

May 17, 2023 | Griffin Gildea, Associate Research Analyst

This chart description is for illustrative purposes only and its accuracy cannot be guaranteed. Please see full disclosures at end of PDF document in the web post. General description: Area and line chart showing U.S. debt limit and debt limit suspensions since 2008. Chart subtitle: Since 1960, Congress has raised, extended, or revised the debt limit 78 separate times . Chart source: White House Office of Management and Budget, Treasury Department, WSJ. Chart visual description: Y-axis is labeled Federal Debt Subject to Limit and ranges from $0T to $35T. X-axis shows years from 2008 to 2023 with annual intervals. Debt limit is plotted in orange line. Debt Limit Suspensions are plotted in purple line. Debt overall is plotted using solid light purple area. Chart data description: Debt limit and amount of debt have steadily increased, with a noticeable jump in 2020. The limit has not been increased since January 2022, though federal debt has continued to increase. End chart description. See disclosures at end of document.

Investor questions continue to mount as the U.S. nears the Treasury’s estimated debt ceiling “X-date” of June 1. While there are some signs that progress is being made between President Biden and Republican leaders, the two sides still seem far apart on a deal to raise or suspend the country’s debt limit. Failure to do so would result in the U.S. defaulting on its debt for the first time and would have significant economic consequences. According to the Council of Economic Advisors, even a brief default could lead to the loss of half a million jobs, a 0.6% contraction in real GDP, and a 0.3% increase in the unemployment rate. An extended default would be even more dire, with a forecasted loss of 8.3 million jobs, a 6.1% reduction in real GDP, and a 5% increase in the unemployment rate.¹

As shown in this week’s chart, raising or suspending the debt ceiling has become a fairly common occurrence over the last several years, though the process can be political, contentious, and last minute. This week, amid continued talks between staff, President Biden and Speaker McCarthy, along with other congressional leaders, held a meeting both sides described as “productive.” Both parties are seeking a deal to prevent default, though agreeing on the details — future spending cuts, federal aid work requirements, and clawing back unspent COVID funds, among other Republican demands — remains a delicate process. Markets are closely following the debt-ceiling developments and, while the severity of consequences from a default will hopefully lead to a timely resolution, both equity and fixed income should brace for ongoing volatility from here.

Print PDF > Raise the Roof

 

¹Council of Economic Analysis, The Potential Economic Impacts of Various Debt Ceiling Scenarios

 

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Griffin Gildea
Associate Research Analyst

Get to Know Griffin

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

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