Washington, DC – The Bipartisan Policy Center projects that the debt limit “X Date” will most likely arrive between mid-October and mid-November. This forecast narrows BPC’s earlier projection range of fall 2021.
“Given the current pace of federal spending and revenues, we are reasonably confident that the X Date won’t arrive before the start of the fiscal year, or even the week or so following,” said Shai Akabas, BPC director of economic policy. “But the train could go off the rails shortly thereafter, and just because Congress has a bit more breathing room than previously expected, doesn’t mean lawmakers need to use it.”
While current data indicate the X Date is unlikely to fall outside of BPC’s range, the heightened uncertainty around federal cash flows this year could lead to surprise developments. For example, September quarterly tax revenues and the magnitude of upcoming federal payments towards pandemic relief efforts, such as to the Small Business Administration and Coronavirus Relief Fund, could play particularly prominent roles in the timing of the X Date. Even forestalling those legislatively approved payments, however, would only modestly push back the window.
“Yields are rising on some short-term Treasury securities, indicating that financial markets are already concerned and that extended congressional negotiations are themselves costing federal taxpayers money,” said Akabas. “Only timely legislative action can address the serious economic risks associated with failing to make good on our commitments.”
The debt limit was reinstated on August 1, 2021, at $28.4 trillion, and the Treasury Department immediately began deploying its “extraordinary measures.” By the end of August, the department had already utilized most of those tools, with the Thrift Savings Plan’s G Fund nearing full divestment.
At that point, the Treasury Department had approximately $400 billion worth of cash on hand and extraordinary measures remaining, not including a roughly $48 billion bump at the end of this month when it foregoes investments in federal workers’ retirement and disability pension funds. As Treasury continues to spend down these resources over the coming weeks, the department will soon have dangerously few reserves to fund the government’s obligations. Once the Treasury Department exhausts these resources, military pay, veterans’ benefits, Medicare provider payments, and numerous other payments would come due in the following days—some or all of which would not be made on time.
Crossing the debt limit X Date would be an unprecedented event, carrying grave risks to financial markets and the global economy.
BPC will update its projection in the coming days as warranted by incoming data.
Shai Akabas is available for comment.