Treasury Secretary Jacob Lew warned lawmakers Thursday that a final deadline for raising the nation’s borrowing limit is likely to arrive next month, not in March, which he had previously said was a possibility.
“I think that if Congress is looking at the numbers the way we are — we have the best data — they would see that they would be looking more at the end of February than any time in March,” Lew said Thursday at a discussion hosted by the Council on Foreign Relations.
The $17 trillion debt ceiling, which was suspended in October as part of the agreement to reopen and fund the government following a 16-day shutdown, will be reached again on Feb. 7. The Treasury Department can then use special authority — so-called extraordinary measures — to prevent the nation from defaulting. These measures briefly allow the United States to continue to meet its obligations until a later date, often referred to as the “drop-dead” deadline. At that point, the nation risks default.
Lew’s emphasis on February in his Thursday remarks was a departure from a letter he wrote to House Speaker John Boehner last month. In that letter, the Treasury secretary said his agency’s authority would likely last through “late February or early March.”
The unpredictable nature of tax season makes it tough to forecast the exact date when Treasury will exhaust these special measures. In November, the nonpartisan Congressional Budget Office said that would “probably” happen in March. “However, the timing and magnitude of tax refunds and receipts in February, March, and April could shift that date of exhaustion into May or June,” CBO said in a report on the debt ceiling. On Wednesday, Morgan Stanley economists estimated the drop-dead date would arrive somewhere between late March and June.
“We see it as a close call whether this would last only until late March or further into the spring, which would be largely determined by how strong the tax-refund season is,” they wrote in a note to clients.
On Thursday, Lew criticized the “Washington parlor sport” of guessing when the nation will hit the limit, and he urged lawmakers to act to raise it “as quickly as possible.”
“The buildup to the last minute causes damage,” he said. Economists — including those at Treasury — often cite sliding stocks, lower confidence, and greater uncertainty as some of the negative effects that can ripple through the economy as a result of debt-limit brinkmanship.
Raising the debt limit has been a politically contentious issue for years, most dramatically coming to a head in Aug. 2011, when a last-minute deal averted default but cost the U.S. its top AAA credit rating. Lew, Boehner, and Senate Majority Leader Harry Reid each separately urged lawmakers on Thursday to raise the limit before a default is near.
“All I know is that we should not default on our debt. We shouldn’t even get close to it,” Boehner told reporters.
In the afternoon, Reid walked back remarks he made earlier Thursday that the debt limit probably wouldn’t need to be dealt with until April or May. “Senator Reid believes that the debt ceiling should be dealt with as soon as possible,” spokesman Adam Jentleson said in a statement.
The outlines of the next round of debt-ceiling talks are still taking shape on Capitol Hill. The White House has said it would be unwilling to negotiate on the debt ceiling, meaning it would not play ball with Republicans who want to use an agreement to hike the borrowing limit as leverage for other issues. Reid said the same on Thursday.
But early next month, Senate Republicans are expected to include the goal of achieving some sort of concessions over government spending through the upcoming debt-limit talks in the 2014 strategy they sketch out at their annual retreat. And so the debt limit risks becoming a congressional sticking point once more.