The U.S. Treasury Department could drain emergency resources to cover the federal government’s financial obligations by the beginning of July, potentially setting off an unprecedented fiscal crisis if lawmakers, according to a new report from Wells Fargo.
The note, published Thursday by Wells Fargo Economics, says their projections show that “Date X” — the day when the U.S. would be unable to honor its financial commitments — likely falls between early July and the beginning of September.
“We tentatively think the Treasury can make it through to the end of July, although that is still far from certain this far out,” Mike Pugliese, co-author of the report and an economist at Wells Fargo, told CBS News. “August is usually a month in which the federal government runs a large budget deficit, and our current forecast is for a $300 billion deficit in just that month alone.”
Hitting Date X without raising the debt ceiling could lead the U.S. to default on its debt for the first time in its history, triggering a wave of potentially serious economic consequences. America’s credit rating would likely be downgraded, causing the stock and bond market to plummet.
Millions of Americans also could see their retirement savings shrink, while the broader economy — already teetering on the edge of recession — could sharply deteriorate, experts say. Economists warn that a first-ever default would also weaken the dollar and send ripples across the global financial system.
Wells Fargo said the exact timing of Date X will become clearer after the April 18 deadline filing federal income taxes, which will affect government revenue.
The debt limit, which is set by Congress, represents the maximum amount the federal government is allowed to borrow to pay its obligations. Since 1960, Congress has acted 78 times to raise, temporarily extend or revise the definition of the debt limit, according to Treasury. The debt limit was changed 49 times under Republican presidents and 29 times under Democratic administrations. The last time the debt ceiling was lifted was in December 2021, when Democrats controlled both the House and Senate.
In a letter to congressional leadership on Thursday, Treasury Secretary Janet Yellen said the agency will begin taking “extraordinary measures” to temporarily keep the government under the borrowing limit of $31.4 trillion after hitting the debt ceiling.
Those measures could inflict pain on retired federal workers as Yellen will have to decide what government functions and payments receive priority funding.
Some of the emergency actions include suspending new and existing investments in funds that provide benefits to retired and disabled federal employees and health benefits for retired U.S. Postal Service workers.
Yellen predicted that Date X could arrive as soon as June. In her letter, she wrote the “debt issuance suspension period” will begin today and last until June 5.
The Bipartisan Policy Center warned last week that Date X could arrive earlier than June due to persistently high inflation, a push by the Federal Reserve to raise its benchmark interest rate and the suspension of President Biden’s student loan plan.
The decision to raise or suspend the debt ceiling rests in the hands of Congress. Several House Republicans have taken a hardline approach, insisting they will not increase the debt ceiling until there is an agreement to cut government spending. The White House has rejected any calls to reduce spending as part of a deal.
“Congress must address the debt limit without conditions. Our posture on this hasn’t changed. There will be no negotiations of the debt ceiling,” White House Deputy Press Secretary Olivia Dalton said on Thursday. “Again, Congress must address this without conditions, as they did three times under Donald Trump with bipartisan support.”
Wells Fargo warns that the “probability of a protracted and potentially serious debt ceiling showdown is elevated compared to similar episodes in the past.”
The August 2011 debt ceiling showdown was perhaps the closest brush the United States had with Date X, the report says. In the aftermath, Standard & Poor’s downgraded the U.S. credit rating from AAA to AA+. Stocks plunged in just a few weeks as nervous investors fretted over the congressional deadlock, and consumer confidence plummeted.
“In a full-blown, complete default scenario that dragged on for an extended period of time, I think the global economy likely would suffer materially,” Pugliese said.