After months in and out of the headlines, the issues surrounding the debt ceiling have come into sharp focus, as the U.S. could become unable to pay its bills as soon as June 1. There’s nothing like an impending deadline to force action.
What is the debt ceiling?
The debt ceiling is the amount of money the U.S. is authorized to borrow to pay its bills. Since the U.S. runs a budget deficit, the government is forced to borrow to make up the difference. Since Congress has the “power of the purse,” it sets spending limits and must approve any increase.
Why is this an issue?
A debt ceiling “crisis” is nothing new. Historically, Congress has always suspended or raised the debt limit to ensure the U.S. avoided default. But as happens frequently with divided government, Washington D.C. is currently at an impasse. Republicans in the House passed a bill that would raise the debt limit in exchange for spending cuts. Democrats, on the other hand, are looking for a bill without conditions to previously approved legislation. A deal will need to be reached where both sides make concessions.
Where do we stand now?
Stocks closed higher after President Biden expressed optimism about debt ceiling talks, and both he and Speaker McCarthy expressed confidence that a default will be avoided. This is a good sign that, despite the harsh rhetoric from both sides, a deal will get done.
We know the markets don’t like uncertainty, so getting the debt ceiling issues behind us will be one less thing for markets to worry about. As your financial professional team, we’re here to help handle whatever is thrown at you and keep you focused on your financial goals.