US could face debt-ceiling crisis this summer without deal, CBO warns

“US Treasury Department will exhaust its ability to pay all its bills sometime between July and September unless the current $31.4 trillion cap on borrowing is raised or suspended,” warned the US Congressional Budget Office (CBO) on Wednesday per Reuters.

The CBO released its annual budget outlook together with a report suggesting that a historic federal debt default could occur before July if revenue flowing into the Treasury in April - when most Americans typically submit annual income tax filings - lags expectations, reported Reuters.

“Over the long term, our projections suggest that changes in fiscal policy must be made to address the rising costs of interest and mitigate other adverse consequences of high and rising debt,” said CBO Director Phillip Swagel.

Key quotes

If the debt limit is not raised or suspended before the extraordinary measures are exhausted, the government would be unable to pay its obligations fully.

As a result, the government would have to delay making payments for some activities, default on its debt obligations, or both.

Annual US budget deficits will average $2 trillion between 2024 and 2033, approaching pandemic-era records by the end of the decade - a forecast likely to stoke Republican demands for spending cuts.

CBO estimated an unemployment rate of 4.7% this year, far above the current 3.4%.

Market implications

The news could be considered a catalyst for late Wednesday’s corrective bounce in the market sentiment. However, strong US data and hawkish Fed bets keep the risk barometer AUD/USD pair depressed.

Also read: AUD/USD licks its wounds near 0.6900 ahead of Aussie employment data