White House Chief Economist Jared Bernstein warned Republicans against using the debt ceiling as a negotiating tool next year with the economy in transition and still facing the headwinds of rising interest rates and high inflation.
“It’s always an absolutely terrible time to tinker with the debt ceiling like the Republicans have been talking about, but it’s even worse now,” Bernstein told Yahoo Finance in an interview. “We’ve talked about an economy that’s changing … headwinds, which are real. There are obvious risks for different landing scenarios. This is, this is just the absolute worst moment to think about your own goals, of which that would be a huge one.”
House Republicans, who are set to gain control of the lower chamber in January, are expected to use the nation̵[ads1]7;s debt ceiling as leverage to push policy changes they want passed next year, setting up the potential for a standoff that could rattle markets.
“Weaponizing the debt ceiling to achieve your spending goals is the height of irresponsibility,” Bernstein said. “The reason we have to raise the debt ceiling is to pay for spending that Congress has already approved.”
In previous years, Republicans have demanded deep spending cuts in exchange for voting to raise the debt limit. That led to standoffs that resulted in government shutdowns, falling markets and, in 2011, an unprecedented downgrade of the country’s credit rating.
Republicans, including House GOP Leader Kevin McCarthy, who is trying to round up enough votes to become speaker of the House, have proposed that increases in the debt ceiling should be tied to significant cuts in domestic spending and potentially reductions to Social Security and Medicare. The requirements also include potential changes in immigration policy. Several Republicans have said outright that they will oppose raising the borrowing limit even if all their demands are met.
Bernstein expects the economy to continue growing next year and doesn’t think a recession is “inevitable,” but implied failure to raise the nation’s borrowing limit could send the economy deeply off course.
Congress raised the debt ceiling by $2.5 trillion to just over $31 trillion last December. That level is expected to be reached sometime in 2023. The Finance Ministry has not specified when the limit will be breached, although the agency could delay the so-called X date by putting in place “extraordinary” measures to buy time.
A lack of political urgency and a shrinking window before the holidays led Democratic congressional leaders to try to raise the debt ceiling in the lame-duck session before losing control of the House in January.