Forbes Money Investing Debt Limit Agreement Sets Up Potential Showdown For 2025 Simon Moore Senior Contributor Opinions expressed by Forbes Contributors are their own. I show you how to save and invest. Following Jun 7, 2023, 02:55pm EDT | Press play to listen to this article! Got it! Share to
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Washington, DC - MAY 22: U.S. President
Joe Biden meets with House Speaker Kevin McCarthy (R-CA) in ... [+] the Oval Office of the
White House on May 22, 2023 in Washington, DC. Biden and McCarthy were meeting to discuss raising the debt limit in an effort to avoid a default by the federal government. (Photo by Drew Angerer/Getty Images) Getty Images The text of the latest debt limit deal has potentially set up the next installment of the drama for early 2025. Though the nature of that debate will depend on the outcome of the 2024 election. 2023’s Outcome In 2023 a deal on the debt limit was reached a few days before the Treasury’s estimate of heightened potential default risk or the so-called X-date . Stock markets were relatively unfazed by 2023’s debate, though we did see impact on near-term U.S. Treasury yields. Still, there was no repeat of the 2011 market sell-off. The text of 2023’s debt limit agreement sets up the next deadline. The current deal suspends the debt limit until January 2025, allowing the U.S. government to keep borrowing to pay the bills until then. Therefore, assuming no agreement beforehand, the next debt limit debate will take place soon after the 2024 election, possibly with new political leadership in place. Extraordinary Measures Once again, it’s likely that the U.S. Treasury will invoke extraordinary measures to push out the risk of default in 2025. This involves managing payments from government-administered pension and retirement funds to temporarily help pay the bills. In 2023, it is estimated by the U.S. Treasury and others that this added around 5 months to the X-date of potential U.S. default. However, in 2025 the timeline will depend on the precise timing and amounts of government expenditures and tax receipts as well as the actions that the Treasury chooses to take under extraordinary measures. For example if the U.S.
economy were in recession in 2025, it’s likely the X-date could come sooner with lower tax revenues and larger government expenditures on benefits. Still it’s reasonable to assume that the next X-date may occur in mid-2025 if there is no immediate agreement on the debt limit. MORE FOR YOU At The Bleeding Edge Of Ukraine’s Counteroffensive, The Ukrainian Marine Corps Switches Up Its Tactics Twitch Hit With Backlash And Boycott Threats—As Streamers Say New Rules Threaten Their Income Tucker Carlson Launches New Twitter Show Weeks After
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Ukraine And UFOs Political Changes For the debt limit debate it matters who’s in power. If the Presidency and
Congress are held by the same political party, then the debt limit has historically been raised without issue. However, as we saw in 2023, if different parties hold key positions in Congress and the White House then negotiations to raise the debt limit can be a drawn-out process. It’s therefore, important to note that the next debt ceiling debate will take place after the 2024
election and so political leadership may change. For now, the debt limit is one less thing for markets to worry about. That said, U.S. debt does remain high in historical terms , which may present some economic risk regardless of the status of the debt limit. However, depending on the outcome of the 2024 election, 2025 could be the next year where the debt limit once again moves markets and draws headlines. Follow me on Twitter or LinkedIn . Check out my website or some of my other work here . Simon Moore Editorial Standards Print Reprints & Permissions