Seven Questions for Investors on the US Debt Ceiling

Friday 26 May 2023

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May 2023 | The current US debt ceiling was reached in January and the US Treasury warned that it would run out of cash to meet its expenditure commitments around June 1st, although a precise date is impossible to predict. The Republicans’ initial proposal asked for spending cuts to the tune of a 1% limit on the annual growth of nominal government expenditure over the next ten years. This fiscal contraction, along with a tight monetary stance, would be negative for economic growth. However, a default would be even worse for the economy.

01 |  We think there is a good chance that an agreement to raise the debt ceiling will be reached soon, as it has been raised multiple times in the past. However, agreement requires approval of both chambers of Congress.

02 | If agreement is not reached by June 1st, the government could enter into debt prioritization for a short period of time, paying debt servicing and debt principal payments before other expenditures.

03 | A default would have terrible consequences for the markets, because US Treasuries are considered to be the safest asset in the world, against which the pricing of all other financial assets (credit, equities etc.) is benchmarked.

Seven Questions for Investors on the US Debt Ceiling

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Unless otherwise stated, all information contained in this document is from Amundi Asset Management US (Amundi US) and is as of May 26, 2023. Diversification does not guarantee a profit or protect against a loss. The views expressed regarding market and economic trends are those of the author and not necessarily Amundi US and are subject to change at any time based on market and other conditions, and there can be no assurance that countries, markets or sectors will perform as expected. These views should not be relied upon as investment advice, a security recommendation, or as an indication of trading for any Amundi product. This material does not constitute an offer or solicitation to buy or sell any security, fund units or services. Investment involves risks, including market, political, liquidity and currency risks. Past performance is not a guarantee or indicative of future results. Amundi Asset Management US is the US business of the Amundi Asset Management group of companies.