With two years to go before the next US Presidential election, and emboldened House Republicans looking for a quick political win, the ‘US debt ceiling’ is back on the agenda in 2023.
As a reminder, the US debt ceiling is the legal limit on the amount of debt that the US federal government can incur. When the debt ceiling is reached, the US government may be unable to borrow any more money and may have to reduce spending. And of course, if the US government is forced to reduce spending, it can lead to lower economic growth, recession, and lower shares.
Additionally, uncertainty surrounding the debt ceiling and the US government's ability to manage its finances can also lead to increased volatility.
So if the debt ceiling is a do or die issue, why are markets relatively calm? Because we’ve been here before, many times.