What to Know in Washington: US Debt-Limit Distress Returns 2023


By Brandon Lee

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Washington and Wall Street are well accustomed to the partisan brinkmanship over the US federal debt limit, but the battle looming in 2023 carries a major economic risk at a time when the US may have slumped into a recession.

Negotiations will be crucially shaped by the outcome of the Nov. 8 congressional election. If forecasts bear out, Republicans will assume control of at least the House, and some GOP lawmakers are vowing to demand spending cuts as the price for increasing the statutory debt ceiling.

Photographer: Eric Lee/Bloomberg
House Minority Leader Kevin McCarthy (R-Calif.) speaks at the US Capitol in Washington, D.C., on July 27.

“If we go into recession, the response normally is stimulative fiscal policy, but it seems like the appetite for that may be waning. So that could exacerbate any downturn,” said Michael Feroli, chief US economist at JPMorgan Chase & Co.

While a shift toward fiscal tightening now might help in the battle to cool US inflation, the debt-limit fight is expected to come around the third quarter of 2023, by when most economists see price gains having come well down.

Feroli noted potential similarities to the debt-limit crisis of 2011. Republicans took over the House in the 2010 midterm elections and proceeded to use the debt limit as leverage in fiscal debates.

“It seems like we’re setting up for probably a pretty stressful episode again,” Feroli said. “I don’t know how to scale it,” he said of the danger of a payments default, though still characterizing it as a tail risk. Steven T. Dennis previews the showdown.

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To contact the reporter on this story: Brandon Lee in Washington at blee@bgov.com

To contact the editors responsible for this story: Giuseppe Macri at gmacri@bgov.com; Loren Duggan at lduggan@bgov.com

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