When could the U.S. default? Here are the latest projections.
Since the Congressional Budget Office (CBO) released new information on federal finances last week, outside groups have been poring over the data to give Washington and Wall Street a clearer indication of when the government may not be able to to pay their bills.
But the picture remains very murky.
In recent days, observers have presented a range of options – including some that see risk rising in June – should a default be on the table. That is, unless lawmakers and the White House can agree on a deal to increase the US government’s borrowing powers. The stakes are high – even the threat of default will rock US and global markets and could also plunge the economy into recession.
The latest projection was announced Wednesday morning by the Bipartisan Policy Center. Their verdict: Insolvency is expected to occur in the summer or early fall of this year.
Shai Akabas, the BPC’s director of economic policy, presented the updated forecast on Wednesday morning, citing things like rising interest rates and persistent inflation. “Most of these factors contributed to bringing the X date forward compared to last spring’s expectations,” he said.
This week’s report adds that the US government will spend more than $3 trillion through June, bringing in about $2.5 trillion. Uncertainty about when the government might run out of money comes as even small swings — likely during the upcoming tax season — could quickly shift the default dates, also known as the X-date.
4 More “Crunch Date” Projections
The uncertainty seen in BPC is evident across the spectrum.
The CBO last week issued its own forecast that the government is expected to be unable to fully service its debt obligations “between July and September 2023” without action from Congress.
Another group that closely tracks cash movements in and out of the Treasury Department is a data company called Wrightson ICAP. Analysts there – who specialize in Federal Reserve operations and Treasury funding – currently have a slightly tighter window, as a recent Feb. 20 note maintains a “baseline forecast of a late July or early August crisis date.”
But both the CBO and Wrightson ICAP were quick to note that they can’t rule out the X-date possibly arriving as early as June.
And in another recent analysis, this time by Goldman Sachs in a note published Monday, the local economic research team says it “expects the debt ceiling deadline to be reached in early to mid-August.” The bank’s analysis this week says it expects Congress to act to avoid a disaster. But, they added, even uncertainty about the debt ceiling has historically fueled increased volatility and dislocation in the bond market.
Over at the Treasury Department, the latest guidance came in the form of a letter dated early January from Treasury Secretary Janet Yellen forecasting that “it is unlikely that cash and extraordinary measures will be exhausted before early June”.
The US officially hit the debt ceiling on January 19, when Yellen and her aides began a process known as “extraordinary measures” in response. These accounting maneuvers essentially allow the government to move money around the massive US Treasury and stave off an actual default, but only for a limited time.
But to complicate matters further, Aqabas has also outlined a “too close for comfort” scenario, in which the mere fact that the X-date is approaching could have a destabilizing effect on the economy by June this year, “where Treasury will ring alarm bells. ”
Waiting for more data from tax season
According to experts, solving the problem as soon as possible is a bonus for the legislator. “Obviously they already had a meeting,” Akabas said, referring to a meeting earlier this month between President Biden and House Speaker Kevin McCarthy (R-CA), “but that seems to have stalled, and we hope so.” that this will help move the process forward. “
Since Biden and McCarthy sat down at the White House on February 1, there has been little public activity on the negotiations. Both sides said the talks had been productive, with McCarthy saying a follow-up meeting is on the horizon, but the timing of the next face-to-face has not been announced.
In the meantime, analysts will be watching the upcoming tax season closely as observers cry out for more precise guidance on a potential default.
Wrightson ICAP said the key indicator to watch is the average amount of individual reimbursements received over the coming weeks and months. Noting that bad news for individuals – in the form of a lower average refund size – would be good news for Treasury books, they push the X-date a little further forward.
Akabas added, “We’ll probably have a good sense of what tax season has been like sometime in early May, so it’s going to be a while.”
Ben Vershkul is the Washington correspondent for Yahoo Finance.
Click here for political news related to economy and money
Read the latest financial and business news from Yahoo Finance
Download the Yahoo Finance App for Apple or Android
Follow Yahoo Finance on Twitter, Facebook, Instagram, flipboard, LinkedInAnd youtube