Washington’s standoff over raising the country’s borrowing limit is yet another obstacle facing the Federal Reserve in its quest to achieve a proverbial economic soft landing. It’s a fight that vastly increases the chance of a deeper recession later this year. And for now, at least, markets don’t appear to be worried about any of it.
The debt-ceiling fight in Congress centers on whether lawmakers will vote to raise the country’s borrowing limit to pay off expenses it has already accrued—akin to raising the spending limit on a consumer credit card. Lifting it doesn’t, by itself, authorize new spending. Republicans, who control the House of Representatives, don’t want to act to lift the debt ceiling without some unspecified action or promises to rein in the country’s spending, while Democrats, who control the Senate and White House, say GOP lawmakers are holding the debt limit hostage and won’t negotiate over it.
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