Washington, DC – The Bipartisan Policy Center now projects that the debt limit “X Date”—when the United States will no longer be able to meet its obligations in full and on time—will most likely arrive between mid-December and early February. Today’s update narrows BPC’s previous range of mid-December to mid-February. While the projection no longer entails a caveat for the Highway Trust Fund transfer, which has been confirmed and incorporated, the result is a greater likelihood than usual that the X Date will fall towards the front portion of BPC’s range.
“With enactment of the bipartisan infrastructure package and Treasury’s announcement, we now know that the transfer will expedite the X Date’s arrival,” said Shai Akabas, BPC director of economic policy. “The clock has always been ticking, but it just jumped ahead an hour.”
Monday’s enactment of the infrastructure bill prompted the Treasury Department to clarify when a $118 billion transfer to the Highway Trust Fund will occur. Secretary Janet Yellen indicated this week that the department will follow precedent and complete the transfer on December 15. Because the transfer will increase intragovernmental debt—obligations subject to the debt limit that the Treasury Department owes to other parts of the federal government—it will constrict the department’s borrowing room and accelerate the X Date’s timing. BPC has incorporated this development into its projection, slightly narrowing the range and increasing the likelihood of an X Date earlier in the window.
“At this point, it’s roughly a coin toss whether the X Date hits before Congress returns from its December holiday recess,” said Akabas. “Based on the data we have right now, failing to act before then would be a high-stakes gamble.”
The duration of BPC’s new X Date range is consistent with this phase in the projection process, particularly given the impact of the COVID-19 pandemic and economic recovery on federal revenues and spending patterns. Loan forgiveness resulting from the Paycheck Protection Program (PPP) for small businesses continues to be large and volatile, and economic growth remains at an inflection point, creating even more uncertainty than usual regarding federal revenues.
Policymakers must act before the X Date range if they wish to avoid significant risks and costs to the U.S. economy and global financial system. Failing to raise or suspend the debt limit in a timely manner would be a voluntary decision by lawmakers—unprecedented in modern American history—to default on some of the nation’s obligations. While the Treasury Department may have the operational ability to prioritize certain payments, such as interest and principal payments on debt, crossing the X Date could force the federal government to miss or delay critical payments that Americans rely on, including veterans’ benefits, military and federal salaries, and Medicare reimbursements.
Even approaching the X Date range carries consequences for the U.S. economy. The impact of debt limit brinkmanship has already drawn the attention of credit rating agencies this year, which have warned of a downgrade. Before the October 14, 2021, debt limit increase, interest rates on short-term Treasury securities that matured near BPC’s X Date range rosemarkedly, demonstrating a degree of concern in the market. Ultimately, taxpayers are on the hook for these increased borrowing costs.
BPC continues to closely monitor the Treasury Department’s daily cash flows and available extraordinary measures, and will update its projection as warranted.
Shai Akabas is available for comment.