The US debt limit’s back, but with a whimper for now

The debt limit was reinstated at $36tn on January 2, but it’s not a hard deadline for Congress to act upon immediately. Therefore, the reinstatement of the debt limit does not have implications for our near-term forecast.

What you will learn:

• Because of the Treasury’s cash-on-hand, the use of accounting maneuvers, and a mid-April tax windfall, the drop-dead date for lawmakers to address the debt limit and prevent an unprecedented default by the federal government will most likely fall in the summer.
• Republicans aim to raise the debt limit by $1.5tn on their own, paired with substantial spending cuts over the next 10 years. If Republicans follow through with their plans in early 2025, the latest possible date to address the debt limit would then shift to H1 2026.
• Of all the policy uncertainties in the new year we are least concerned about the debt limit. However, if the government were ever to fail to meet its obligations on time and in full, the consequences would be severe for the economy.

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