In light of the United States hitting the debt ceiling last week, Director of Fiscal Policy Jordan Haring provides a brief refresher on what the debt ceiling is, what happens now that it’s been hit, and the negative consequences of a debt ceiling impasse.

Key points:

• The Fiscal Responsibility Act of 2023 suspended the debt ceiling, which is the legal limit on the amount of debt the federal government can accumulate, through January 1, 2025; on January 2, the debt limit was reinstated at the amount of debt outstanding – $36.104 trillion.
• Upon reinstatement of the debt ceiling, the Department of the Treasury would normally begin using accounting maneuvers known as extraordinary measures to temporarily keep the federal government from defaulting on its debt; yet a scheduled redemption of nonmarketable securities held in a federal trust fund associated with Medicare payments kept the amount of debt outstanding below the debt limit and the need for extraordinary measures at bay until January 21 when the debt limit was breached.
• In the period between the reinstatement of the debt ceiling and the exhaustion of extraordinary measures, Congress must pass legislation that either raises or suspends the debt limit to avoid a default.

Read the analysis