Biden student loan freeze, Fed rate hike weighs on debt limit

But the most important political deadline is the X day.

The Bipartisan Policy Center think tank, a go-to source for identifying that limit, expects it to happen sooner than originally thought thanks to the student loan freeze, which withholding government payments from millions of borrowers, and the Fed’s rate hike. increase, which raises the cost of borrowing by the Treasury to finance federal operations.

“In both of these things, you are talking about tens of billions of dollars,” said the director of the economy Shai Akabas, who believes that is enough to speed up the day X in a few weeks.

The group now expects to break even by the middle of the year.

In the short term this will be just one of the risks that threaten to limit the upcoming debt ceiling. most controversial in history. Conservative Republicans have stepped up their influence in the Speaker’s race demanding budget cuts in exchange for allowing the government to borrow money. The Biden administration is pushing for a clean extension and refuses to negotiate.

The debt default is largely unknown because of its impact on financial markets, where a government default on its bonds can cause chaos, and on the economy as a whole, if not the US can pay things like Social Security benefits and military pay. .

X-day debt limit Estimates by groups such as the Bipartisan Policy Center are critical to Washington’s focus on the urgency of solving the crisis. Treasury Secretary Janet Yellen told Congress last week that the U.S. will meet its borrowing limit on Thursday, instead of the individual estimate for a few days. before his book. That left some politicians unable, although the Chief Financial Officer provided official information near the deadline.

“He should have told us earlier than this,” said Sen. Rick Scott (R-Fla.) said in an interview Wednesday. “That would have given Congress time to deal with this issue first.”

Scott, a member of the Budget Committee, supported legislation that prioritized several items – including paying interest on unpaid debt, Social Security and funding the military – if the debt limit is not raised before the Ministry of Finance runs out of money. cover his responsibilities.

The Treasury declined to comment for this story.

To be sure, there is still uncertainty as to when the current deadline will be due to the many policy and economic changes that are affecting the finances of the government.

“The period in which the special measures can last is subject to a great deal of uncertainty due to many factors, including the challenges of predicting the payments and receipts of the United States government in the future,” the Yellen told Congress last week.

student debt

Student loan repayment is a reason why the Biden administration decided in November to extend the freeze on federal payments for the eighth time due to the Covid-19 pandemic.

The Department of Education delayed payments in January after a federal court halted the administration’s plan to forgive student loans. The case is now before the Supreme Court.

The latest extension will expire 60 days after the trial or the administration can implement a relief, or 60 days after June 30 if there is no decision on that time

Akabas of the Bipartisan Policy Center says the government is missing out on paying its debts by about $5 billion a month.

Price increase

The Fed’s continuing string of inflation-related interest rate hikes since last March is another pressure point.

The increase in rates forces the government to pay more to pay its debts, which means more money is going abroad. The Fed last year raised its key lending rate from near zero to over 4 percent.

The rise in federal interest rates has yet to hit the same level, said Wendy Edelberg, director of the Hamilton Project at the Brookings Institution and a former chief economist at the Congressional Budget Office.

“There’s not a lot of debt to transfer to these high rates,” he said, noting that the average interest rate paid by the U.S. remains at 2 percent, not much higher than which CBO estimated last May.

However, Akabas said the damage to the federal budget could be in the tens of billions of dollars.

The cost of money and taxes

There could also be an impact on the price, as Treasury Inflation-Protected Securities, a type of government bond that has attracted renewed interest from investors in recent months as its value has risen when raise prices. Although the rate of inflation has started to decrease in the past few months, if that situation were to change it could reach tens of billions of dollars in more debt on the books.

However, the impact of the increase in the cost of living may be mixed, as the increase in wages for workers will increase the government’s income.

One of the important things will come when it comes to filing taxes. Strong earnings can push the X date out, but the numbers are promising ways to get closer. The Treasury had an alarm in paying taxes that were more than budgeted last year.

“There’s no reason anyone should be complacent about their time,” said former Congressional Treasury Director Douglas Holtz-Eakin, who is now president. the American Action Forum.

Leave a Comment