WASHINGTON — House Speaker Kevin McCarthy tapped the New York Stock Exchange on Monday to deliver his most detailed comments yet on House Republicans’ demands to raise the nation’s borrowing limit. But his comments made little impression on Wall Street, where investors continue to trade stocks and Treasury bonds on the assumption that Congress and President Biden will find a way to avoid a catastrophic government default.
The lack of market panic over the talks reflects an attitude that has been and is increasingly taken by investors to partisan showdowns over taxes, spending and the government’s ability to pay its bills on time, something lawmakers often decide as late as possible. Moment.
But there are reasons to believe this time could go differently, from the chaos at Mr McCarthy’s caucus — and new warnings that lawmakers may have less time to raise the $31.4 trillion limit than previously thought.
The next few weeks will determine more precisely how quickly the government exhausts its ability to pay bondholders, employees, Social Security recipients, and everyone else to whom it sends money on a regular basis. That’s because data on this year’s government tax receipts will come into sharper focus after the Tuesday deadline for people to file individual income tax returns for 2022.
On Tuesday, economists at Goldman Sachs sounded a warning that the likely date of default could be much closer than previous forecasts — which typically pegged the date in July or August — if revenues come in weak. “While the data is still very preliminary,” they wrote, “weak tax collections so far in April indicate an increased likelihood of a debt deadline being reached in the first half of June.”
Understand the US debt ceiling
What is the debt ceiling? The debt ceiling, also called the debt limit, is the maximum total amount of money that the federal government is entitled to borrow via U.S. Treasury securities, such as bonds and savings bonds, to meet its financial obligations. Because the United States has a budget deficit, it has to borrow huge sums of money to pay its bills.
Republicans refuse to raise the borrowing cap unless Mr. Biden agrees to cut government spending and slow the growth of the national debt, a position that risks plunging the US into recession if the Treasury runs out of money to pay all its bills. time. But Mr. McCarthy has struggled to unite Republicans around specific cuts, although he said on Monday he would bring such a plan to the House of Representatives next week.
Moderates in the Republican caucus are wary of deep cuts to popular local programs, such as education and national parks, that may be prompted by his proposal to limit domestic spending growth at a level well below the current rate of inflation. Fiscal hawks, including the faction that opposed Mr McCarthy’s appointment as speaker and could effectively force a vote to oust him at any time, have pushed for more aggressive cuts. Among them are lawmakers who never voted to raise or suspend the debt limit, even under former President Donald J. Trump, who signed Three suspensions from the limit in law.
Mr. McCarthy presented details of his plan to fellow Republicans on Tuesday. As revealed Monday, it will raise the limit for about a year. It would also return most domestic spending to fiscal 2022 levels and limit its growth for a decade. Mr. McCarthy also wants to add work requirements for federal food aid recipients and reduce federal regulations on fossil fuel development and other projects, which he says will boost economic growth.
It is unclear whether enough Republicans will vote for this package to ensure it passes the House of Representatives. Senate Democrats will almost certainly reject it, as will Mr. Biden, who has said repeatedly that he expects Congress to raise the limit on borrowing without strings attached.
Mr. Biden has shown no indication he will step in to speed up discussions about raising the limit, or seek to broker any deals in Congress to do so. The president said he would negotiate taxes and spending levels separately from the borrowing limit. But he and his aides refuse to engage more closely with Mr McCarthy on fiscal policy until Republicans rally around the budget plan.
Lyle Brainard, director of Mr. Biden’s National Economic Council, said at the World Economy Summit Semaphore at the media outlet’s World Economic Summit in Washington last week. “But we’re looking forward to it.”
The only market so far that reflects pressure around the debt limit is the one most favorable to it: default swaps, which identify the risk of the government failing to make scheduled payments to bondholders. Mr. McCarthy shrugged off that pressure in a question-and-answer session after his speech on Monday.
“The markets go up and down,” he said.
The stock and bond markets were unfazed by Mr McCarthy’s comments. In recent months they have been more reactive to any clue as to what the Fed will do next in its campaign to tame high inflation by raising interest rates.
Some White House officials privately say they expect Republicans to step up efforts to raise the limit if and when investors start to worry more about the negotiations. That’s what happened in 2011, when a showdown between congressional Republicans and former President Barack Obama nearly ended in default. Inventories plunged and borrowing costs rose for businesses and homebuyers. The damage took months to repair.
Some Republicans similarly hope that waking up Wall Street will push Biden to change his negotiating stance, including Rep. Patrick McHenry, R-North Carolina and chairman of the House Financial Services Committee.
“I don’t think market participants have any idea how bad these negotiations are right now, which should give them pause and worry and should actually bring the president to the negotiating table,” he said.
Appearing before Mr. McHenry’s panel on Tuesday, SEC Chairman Gary Gensler warned that a US debt default “would be a mess in the capital markets.”
“It will hurt the stock markets, it will hurt the rest of the fixed income markets, and it will spill over into the banking system,” he said.
Katie Edmondson Contribute to the preparation of reports.
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