Debt ceiling: Washington grapples with ‘hard choices’ if no deal is in place by June 1

Debt ceiling: Washington grapples with 'hard choices' if no deal is in place by June 1

Washington is currently facing the challenge of reaching a debt-ceiling deal before the approaching deadline of June 1. The potential consequences of a failure to reach an agreement are being actively discussed and debated.

The immediate economic impact of a true default, which would be a first in American history, remains uncertain. Negotiators are still divided on various issues, adding to the complexity of the situation.

Time is running out to strike a deal and pass it into law within the next 10 days. President Joe Biden and House Speaker Kevin McCarthy are scheduled to meet on Monday at 5:30 pm ET for further discussions.

Treasury Secretary Janet Yellen emphasizes the need for a deal, stating that it is unacceptable for the country to be unable to meet its financial obligations.

In the absence of a deal by June 1, Yellen has identified key priorities that include ensuring the payment of interest on existing debt and timely disbursement of Social Security benefits and salaries for military personnel. She shared these concerns during an interview on NBC’s “Meet the Press” on Sunday.

If the negotiations fail or progress too slowly, difficult decisions will have to be made regarding which bills can be paid.

However, some Republican lawmakers in Washington hold the view that the initial economic turmoil could be limited. Strategas Securities Managing Director Jeannette Lowe echoed this sentiment on Monday, suggesting that Yellen’s approach might mean June 1 “wouldn’t actually result in a real default.”

In the event that June 1 arrives without a deal, the government may resort to withholding payments to government contractors, which could pose risks, particularly for companies in sectors such as defense and healthcare, as highlighted by Lowe.

Brian Gardner, Chief Washington Policy Strategist at Stifel, agrees with this perspective but adds a caveat that none of these scenarios have been tested before.

During a separate interview, Gardner expressed the possibility that an “X-date” around June 1 could be reached without a deal, and the anticipated impact might not be as significant as everyone expects.

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