Economy 3 min read By Alice Ashford
US Debt Limit Likely Reached by February, Bank of America Says
The federal borrowing limit could be reached as early as February, and the window to prevent a default may narrow to a dangerously short period when Congress goes on its summer recess.
The United States is expected to reach its federal borrowing limit sooner than previously forecast, potentially narrowing the window for Congress to act before the government risks defaulting on its obligations. Bank of America now expects the ceiling, currently set at $41.1 trillion, to be reached as early as February, up from an earlier forecast of May.
Only about $557 billion of headroom remains under the limit. Once it is hit, the Treasury can rely on extraordinary measures to keep paying the government's bills for a period. The date on which the government would run out of cash and face default, known as the X-date, is currently forecast for November 2027, though the risk of approaching that point could emerge as early as August 2027. Bank of America says guidance pointing to an August X-date is likely, given how little room is left under the ceiling.
August is a particularly awkward month for the timing. Congress typically takes a summer recess, and while congressional leaders can recall lawmakers, debt-limit votes have historically involved brinkmanship that is difficult to resolve quickly. Should the deadline arrive while Congress is away, the margin for error could become uncomfortably small.
The political picture has also shifted. Democrats won control of both the House and the Senate in last week's midterm elections, which means they will be in charge of the debt-limit fight in the next Congress. Wall Street analysts expect Democrats to use the negotiations to seek funding for Medicaid, housing and affordability measures, putting the issue at the centre of wider budget priorities.
There are options available before the new Congress takes office. Republicans could raise the limit during the lame-duck session, the period between the election and the new term, to deny Democrats political leverage. One possible vehicle would be a funding bill with a December 11 deadline, though it would need 60 votes in the Senate. An alternative is a party-line reconciliation bill, which would require only a simple majority but would have to pass with a narrow Republican margin.
The stakes are rising as borrowing costs climb. Net interest payments rose 8% to $1.05 trillion in fiscal 2026, and interest now exceeds spending on the Pentagon and Medicaid. The government is paying roughly $2.9 billion per day in interest. The Peterson Foundation calculates that interest costs have reached 3.2% of GDP, a record high going back to 1991.
Markets are also watching closely. BMO has warned of a protracted standoff in 2027 if the limit is not lifted this year. Potential consequences include sovereign credit downgrades, price distortions as the X-date approaches, and volatility in the repo market, where short-term funding is traded.
Source: fortune.com
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