Credit rating agency warns of congressional debt limit freeze despite GOP majority
Sen. Ron Johnson, R-Wis., discusses the upcoming government shutdown as Congress tries to pass a spending bill.
The United States is at risk of a debt ceiling impasse with Congressional Republicans facing a narrow majority in the House of Representatives, Fitch Ratings warned in a report on Tuesday.
“The U.S. faces major policy challenges in 2025 related to the debt ceiling, spending, and tax cuts in the face of already large deficits and a growing debt burden,” Fitch wrote. “We think it is unlikely that the debt ceiling debate will be resolved before 2025 given the deep disagreements over spending policies in Congress.
“The pre-Christmas government shutdown was averted at the last minute, after a contentious debate over President-elect Donald Trump’s insistence that funding be tied to a debt ceiling/rearrangement, and disagreements over specific spending,” Fitch said. he explained.
Congress recently raised the debt ceiling through 2023, with the Fiscal Responsibility Act suspending the debt ceiling until Jan. 1, 2025, and set spending limits on discretionary spending. A new increase or suspension of the debt limit may be necessary this spring or summer to prevent the federal government from defaulting on its debt.
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Fitch indicated that Congress would need to act on the debt ceiling in July or August to prevent the federal government from defaulting on its debt. (MANDEL NGAN/AFP via Getty Images/Getty Images)
Earlier this month, the Ministry of Finance estimated that the new debt limit will be binding between Jan. 14-23 – which will enable the agency to use accounting methods known as “extraordinary measures” to avoid defaults and fund government obligations for a certain period of time. a few months until those tools run out.
It’s not clear how long those extraordinary measures will last, but Fitch analysts wrote that they believe the “ix-date” could come down in July or August, giving lawmakers a few months to tackle the debt ceiling.
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Without the debt limit, Congress will need to pass a federal funding bill by March 14 to prevent a partial shutdown from happening through continuing short-term debt or appropriations bills.
That debate could include discussion of extending discretionary spending measures that expire in September, and could come after talks on extending the 2017 tax cuts and related changes that Republicans plan to implement through the budget reconciliation process.
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The reconciliation process allows tax and spending-related legislation to bypass the Senate’s 60-vote legislative filibuster and pass with a simple majority vote as long as the bill complies with special budget rules. Even if that option exists, it will be a challenge for GOP leadership to steer legislation through that process with a slim majority in the House.
House Republicans won 220 seats in November’s election, giving them a five-seat majority over Democrats. However, those rates were reduced following the resignation of former Rep. Matt Gaetz, while two other GOP lawmakers have accepted roles in the incoming Trump White House.
Those members’ departures will leave their seats temporarily open until a special election is held to replace them – leaving Republicans with a two-seat majority in the interim.
House Speaker Mike Johnson, R-La., will have to deal with a slim GOP majority as Congress grapples with a variety of fiscal policy issues. (Eva Marie Uzcategui/Bloomberg via Getty Images/Getty Images)
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Fitch wrote that that momentum could lead to “a busy summer when policymakers try to finalize the debt bills, raise or freeze the debt limit before x date, and reach an agreement to extend the 2017 tax cuts.”
“Our basic assumptions are that these issues will be resolved. But the absence of a coherent budget process and the upcoming policy debate about further tax cuts and spending adjustments amid a still-challenged political environment means that important decisions can be reached on an ad hoc, issue-by-issue basis, underscoring the US’s decline in governance. in financial matters in recent years,” Fitch explained.
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