Pushing the Limit: Last-Minute Debt Limit Resolutions Have Increased Market Volatility and Uncertainty

Jacewitz, Stefan; Marsh, W. Blake; Sly, Nicholas

Journal Article

Pushing the Limit: Last-Minute Debt Limit Resolutions Have Increased Market Volatility and Uncertainty

Abstract: Since reaching the debt limit in January 2023, the U.S. Treasury has used extraordinary measures to fund the government. However, the Treasury estimates those measures will be exhausted later this year. To gauge possible effects, we review economic and financial market outcomes during previous debt limit episodes. In each case, these episodes led to increased borrowing costs, financial market volatility, and uncertainty, particularly when the resolutions were prolonged.

Keywords: national debt; debt limit; financial markets;

JEL Classification: B22; H6;