2025 US Debt Ceiling Showdown

The Road to a Deal: Four Scenarios

January 09, 2025

• The red sweep (i.e., GOP control over both houses of Congress and the White House) does not guarantee smooth sailing for key pieces of legislation in 2025, including for the debt limit.
• If Congress and the president do not agree on a path for the debt ceiling before the US Treasury runs out of cash to operate the federal government, then the US will experience a sovereign debt default.
• As default is not an option, given the devasting economic and financial market effects, Republicans are likely to use reconciliation to address multiple unavoidable fiscal priorities this year.
• A debt ceiling decision could be paired with a deal to fund the federal government before May to avoid automatic spending cuts or an agreement to prevent trillions of dollars in tax hikes at the start of 2026 or one massive bill. All options likely require reconciliation.
• If reconciliation is not used to address the debt ceiling, then potentially a more difficult path of passing a “clean” bill (i.e., no strings attached) will be explored.