Debt limit considerations
The debt limitA legal ceiling on the amount of outstanding total federal debt (excluding some minor adjustments), which must be raised periodically to accommodate additional federal borrowing. does not determine federal borrowing needs because it does not restrict Congress' ability to enact spending and revenue legislation that affect the level of federal debt or otherwise constrain fiscal policy. Instead, the government's borrowing needs result from all of the revenue and spending decisions made as well as the performance of the economy.
While debates surrounding the debt limit may raise awareness about the trajectory of the federal debt and the fiscal policies driving it, these debates generally occur after the enactment of the tax and spending laws that resulted in current debt levels. Consequently, Congress is left with a narrower range of options to affect an immediate change to fiscal policy decisions and hence to federal debt. For more information, see Debt Limit: Delays Create Debt Management Challenges and Increase Uncertainty in the Treasury Market.
For more information on the debt limit, see What is the debt limit?
- Market Response to Recent Impasses Underscores Need to Consider Alternative Approaches
- Debt Limit: Analysis of 2011-2012 Actions Taken and Effect of Delayed Increase on Borrowing Costs
- Debt Limit: Delays Create Debt Management Challenges and Increase Uncertainly in the Treasury Market