The U.S. could default on the national debt as soon as June if lawmakers and the White House do not strike a deal to raise the federal borrowing limit, according to projections released Wednesday by prominent non-partisan think tank.
The Bipartisan Policy Center (BPC), which closely tracked the debt ceiling, issued new projections Wednesday of the “X-Date,” the date at which the Treasury Department will exhaust extraordinary measures to avert a federal default
BPC warned Wednesday that lawmakers have until anywhere between start of summer and early fall to raise the debt limit or risk a government default – an outcome experts warn could be damaging to the economy.
“We think the most likely time when they were not able to find the government is sometime in the summer or early fall, but that there’s a slight chance that we run up against this very close to the ground point in mid June or early to mid June,” said Shai Akabas, director of economic policy at BPC, in a Wednesday press call.
The center released the updated timeline on early Wednesday after factoring in new data from the Congressional Budget Office (CBO) and the Treasury Department. The group estimated last year that the “X-Date” would hit no sooner than the third quarter of 2023, but several economic and legislative factors can also impact the timeline.
Akabas said extensions to the repayment pause on the federal student loans and the roughly $1.7 trillion government funding omnibus passed by Congress late last year could shorten the timeline.
“Beyond that, there have been significant economic changes. Inflation has been more persistent than people anticipated almost a year ago,” he said in a Wednesday press call.
“Interest rates have risen faster than people anticipated, which means that we are paying more on to service our debt. So, most of those factors have worked in the direction of pulling the X-Date forward, relative to expectations last spring,” Akabas said.
While it’s difficult to pinpoint a hard X-Date, projections are expected to become more precise as the closer the government arrives to running out of cash. Experts are also keeping an eye on how revenues will impact the timeline, particularly as tax season heats up in the weeks ahead.
BPC said that if revenues from tax season fail to meet expectations, there could be “a ‘too-close-for-comfort’ situation prior to quarterly tax receipts due on June 15.”
BPC also pointed to estimates projecting federal spending to surpass $3 trillion “and take in approximately $2.5 trillion between February and June 2023,” warning that “variation of a few hundred billion dollars in either direction would not be shocking, yet would markedly affect the X-Date.”
The Treasury Department last month began implementing what it described as “extraordinary measures” to keep the government from defaulting on its debt after it approached the roughly $31.4 trillion threshold previously set by Congress.
Yellen has warned the nation could default as soon as June and is applying pressure on Congress to move quickly to raise the ceiling, which caps how much debt the government can take on to fulfill its obligations.
“Let’s not wait until the last minute. I believe it is a basic responsibility of our nation’s leaders to get this done,” she said recently, while warning of the potential economic threats a default could yield.
“Household payments on mortgages, auto loans, and credit cards would rise, and American businesses would see credit markets deteriorate,” Yellen said last week. “On top of that, it is unlikely that the federal government would be able to issue payments to millions of Americans, including our military families and seniors who rely on Social Security.”
Experts have also been upping calls for Congress to act fast, as Washington remains largely divided over how to address the debt limit.
The BPC noted on Wednesday that it’s providing “estimates earlier than usual this year,” or about five months out from its “X-Date range,” in a bid “to maximize the time policymakers have to act.”
“They owe it to every hardworking American and small business owner to avoid the costs and risks associated with dragging this out to the 11th hour,” Akabas said.