Washington, DC – Today, the Bipartisan Policy Center issued a warning that projecting the debt limit “X Date” after its suspension expires on August 1 will be more difficult than past instances, due to the high uncertainty of Treasury Department cash flows relating to COVID-19 relief disbursements and the pace of the economic recovery.
These additional factors, beyond the normal volatility associated with tracking federal revenues and expenses, mean that the X Date—the day on which the federal government would default on its obligations—could be particularly unpredictable this year. Absent congressional action, BPC currently projects the X Date will arrive sometime in fall 2021, a broader range than normal for this point in the forecasting process.
“The challenges of accurately forecasting the pandemic’s lingering effects on the economy and the ongoing federal response mean we may not have a clear picture until September, at which point Congress could have just weeks to act,” said BPC Economic Policy Director Shai Akabas. “Policymakers seeking to mitigate risks to the full faith and credit of the United States should act sooner rather than later.”
Partially due to this cash flow uncertainty, in May, the Treasury Department announced it would hold $450 billion in cash on hand on August 1 (as opposed to the anticipated $118 billion), which will serve to supplement its emergency borrowing authority, known as “extraordinary measures.” BPC forecasts that these measures and cash on hand will be exhausted sometime in the fall, at which point the Treasury Department will have insufficient daily revenues to meet all of its obligations in full and on time.
“The Treasury Department’s actions inadvertently bought Congress additional time, but they should not fritter it away,” said Akabas. “In 2019, the possibility of an earlier than expected X Date forced Congress’ hand and spurred action prior to the August recess. While this year’s timing is not necessarily the same, the uncertainty is even greater.”
BPC will update its projections as soon as the data warrants.
Shai Akabas is available for comment.