The U.S. government will hit its debt limit and risk default sometime between July and September unless Congress acts, said the Congressional Budget Office on Wednesday.
In addition, the nonpartisan watchdog agency released its 2023 baseline budget and economic forecast on Wednesday, projecting a federal budget deficit of $1.4 trillion for 2023, up by $0.4 trillion from the agency’s estimate last May. The shortfall was $1.3 trillion in the prior fiscal year.
The CBO said its projection of the cumulative deficit over the 2023–2032 period is now $3.1 trillion more than its earlier estimate, “largely because of newly enacted legislation and changes in CBO’s economic forecast, including higher projected inflation and interest rates.” It sees a cumulative deficit for 2024–2033 of $20.2 trillion, or 6.1% of U.S. gross domestic product.
The CBO’s estimates come as Democrats and Republicans continue to debate raising the U.S. debt limit, after Treasury Secretary Janet Yellen told lawmakers in a Jan. 19 letter that her department has begun to use “extraordinary measures” due to the federal government approaching its ceiling for borrowing.
“The projected exhaustion date is uncertain because the timing and amount of revenue collections and outlays over the intervening months could differ from CBO’s projections,” the watchdog agency said Wednesday, regarding its view that extraordinary measures could get exhausted between July and September.
There is a slight chance of an earlier breach of the debt ceiling, the CBO said.
“In particular, income tax receipts in April could be more or less than CBO estimates. If those receipts fell short of estimated amounts — for example, if capital gains realizations in 2022 were smaller or if U.S. income growth slowed by more in early calendar year 2023 than CBO projected — the extraordinary measures could be exhausted sooner, and the Treasury could run out of funds before July,” the agency said.
The watchdog agency also projected that real gross domestic product will grow by just 0.1% this year, restrained by declining home building and inventory investment.
“As financial conditions gradually ease after 2023, the annual growth rate of real GDP averages 2.4% from 2024 to 2027,” the CBO said.
Congress and the White House have so far made little progress on the debt ceiling.
President Joe Biden and fellow Democrats haven’t been letting up on their demand for the ceiling for federal borrowing to be lifted without preconditions, while House Speaker Kevin McCarthy and fellow Republicans keep calling for spending cuts in exchange for the lift.
The standoff over the debt limit threatens to shake the U.S. government debt markets
later this year, if a divided Washington can’t make a deal and prevent a U.S. default. That will likely spill over into the stock market
In August 2011, lawmakers approved an increase to the debt limit just hours before a potential government default. Within days, the U.S. then lost its triple-A debt rating from Standard & Poor’s for the first time in history, with the credit-rating agency saying the political system of the world’s top economy had become less stable.
Read more: Why the U.S. debt ceiling is already worrying stock and bond investors
Also see: U.S. runs up against its debt limit, so Treasury starts using ‘extraordinary measures’: Here’s what that means
The Bipartisan Policy Center has said it expects to have an updated so-called X Date projection sometime in February, following the CBO’s releases. The day when the U.S. Treasury can’t meet all of its obligations and defaults is called the X Date. Projections from the BPC — a think tank in Washington, D.C. — are closely followed.
Last month, Yellen said it’s “unlikely that cash and extraordinary measures will be exhausted before early June.”