Over the past two decades since Congress has begun playing politics with the U.S. federal debt ceiling, the Treasury Department has developed a playbook for a series of fiscal tweaks and bureaucratic sleights-of-hand that have managed to create borrowing capacity and thereby delay having the U.S. government default on its debt, commonly viewed as a potential seismic event for financial markets.
In episode after episode, the delay engineered by Treasury has given Congress time to reach compromises and allow the government to resume borrowing.
This year, already unique in so many ways, seems to hold different dynamics for the debt ceiling debate as well.
The suspension of the debt limit that allows Treasury to borrow expires on July 31.
Instead of the several months cushion, Treasury Secretary Janet Yellen told reporters Friday that her staff “are concerned that there are scenarios that would give a very limited amount of time through use of extraordinary measures.”
“There are scenarios in which, sometime during the summer, the extraordinary measures would run out,” Yellen added during a appearance in the White House briefing room. Summer in the U.S. officially ends on Sept. 22 this year.
Yellen did not explain what prior extraordinary measures wouldn’t work, only saying the effectiveness of the extraordinary measures was “exceptionally challenging” to gauge given the the higher and more volatile government spending and revenues associated with the pandemic.
Sarah Bianchi, an analyst with Evercore ISI said the fact that Congress has less time to address the debt ceiling than previously thought could mean conversations about deficit reduction could merge into the fiscal debate.
Steve Stanley, chief economist at Amherst Pierpont, said he thought the prospects of getting the debt ceiling taken care of ahead of the July 31 deadline “are pretty good.”
“Democrats seem firmly in control of the legislative process, and they should be able to tack a debt limit extension onto whatever legislation they push through via the reconciliation process,” he said, in a note to clients.
The yield on the 10-year Treasury note
recovered to almost unchanged in the trading session on Friday after briefly falling below 1.5% for the first time since March on the heels of the weaker-than-expected April job report.