Congress might not raise the U.S. debt ceiling until close to the deadline – or until financial markets force their hands.
“Until markets get more volatile, I don’t think you’re going to see meaningful action,” said Adam Stern, co-head of research at Breckinridge Capital Advisors, by phone Wednesday. “It’s very likely they’re going to go as close to the X-date as they can before we get negotiations.”“Until markets get more volatile, I don’t think you’re going to see meaningful action,” said Adam Stern, co-head of research at Breckinridge Capital Advisors, by phone Wednesday.
“It’s kind of a Catch-22,” he said. “As the financial markets get more skittish, it’s more likely to focus the mind of Congress to resolve the problem.” The so-called X-date for the U.S. to lift its debt ceiling to avoid a technical default on its obligations could arrive this summer, according to Wall Street analysts. Goldman Sachs Group estimated last week that the deadline to raise the debt ceiling may be late July, but warned the date could shift to early June if April tax receipts continued to be weak.
Under the scenario where a blocked bill extends debt-ceiling talks, Gardner said Stifel expects “risk-off trade sentiment will start to take hold as investors become more sensitive to debt ceiling-related headlines.” Read: Yellen warns debt default would disrupt Social Security payments, raise borrowing costs ‘into perpetuity’
The U.S.’s rating would be moved to “restricted default” if the debt limit is not raised or suspended in time to avoid a default, according to Fitch.
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