Donald Trump’s first day in office featured a flurry of executive moves he was able to dramatically sign with a stroke of the pen.
High atop his agenda for the second day is a topic that won’t be quite so simple: the debt ceiling.
In fact, Trump is deeply unhappy the issue is on the table at all.
The newly inaugurated president is set for a meeting with congressional leaders Tuesday afternoon to, in part, hash out a strategy for maintaining US creditworthiness and the government’s ability to service the $36 trillion debt.
It’s an issue with a range of political landmines and one Trump can’t ignore. Janet Yellen, in one of her last acts as Joe Biden’s Treasury secretary, alerted Congress that the “extraordinary measures” to avert default will formally kick off today after the debt limit was reinstated to begin 2025.
The start of these extraordinary measures — which amount to essentially moving money around various government funds to make sure the bills keep getting paid — is only a short-term stopgap and a reminder for wary investors that a potentially market-rattling default could be a possibility in a few months time without action.
Trump is set to meet this afternoon with House Speaker Mike Johnson, Senate Majority Leader John Thune and other GOP leaders at the White House for a meeting to hash out the coming Republican strategy.
Also atop the agenda for the new Republican power brokers (and perhaps entwined with the debt ceiling) is the coming reconciliation process and how tax cuts fit in there.
Perhaps the most combustible element of this coming debt ceiling conversation will be Trump himself.
The president has made clear his deep unhappiness that he has to worry about this at all. In December, he called for abolishing the debt ceiling entirely and said the issue was part of what he called a Democratic “trap.”
In one December post, Trump railed against the issue and called the deal that put it on the 2025 agenda “one of the dumbest political decisions made in years.”
His move sent lawmakers into a flurry and — even though they ended up punting the debt ceiling issue — they might have made the coming debate even more complicated for Trump.
President Donald Trump signs executive orders in the Oval Office on January 20. (JIM WATSON/POOL/AFP via Getty Images) ·JIM WATSON via Getty Images
That’s because Johnson dodged the issue, with a promise to his House colleagues that any future debt ceiling deal would happen through the partisan reconciliation process and that it would pair a debt limit increase of $1.5 trillion with $2.5 trillion in cuts made to “net mandatory spending.”
Johnson quickly backtracked on the pledge, but it’s a promise that could haunt the talks ahead, especially because the fiscal conservative wing of his caucus abhors any debt ceiling increase.
Passing the debt ceiling using reconciliation “would be an anomaly when it comes to history,” Bipartisan Policy Center executive director of economic policy Shai Akabas noted in a recent episode of Yahoo Finance’s Capital Gains podcast.
The issues are manifold, with Akabas adding the issue will in the end “likely requires both parties to pass.”
That’s there is a vocal wing of the Republican caucus — in the neighborhood of about two dozen House members — who have never voted for a debt ceiling increase and take pride in that position.
It’s a group with more than enough sway to sink any deal, and they’ve shown a willingness to do just that.
The Republican effort to take the debt ceiling off the table during December’s government shutdown standoff was rebuffed by 34 Republicans who ignored both Johnson and Trump and their pleas to vote yes.
It has led to a widespread expectation that Trump and his allies will need Democratic votes. Stifel chief Washington policy strategist Brian Gardner noted Tuesday “these votes could come at a high price.”
Nevertheless, say Gardner and others, the likelihood of an actual default remains low with Republicans fully aware they would receive the blame if it were actually to occur.
Yet brinkmanship remains likely with Gardner saying “we see the political risks of the debt ceiling debate as a matter of headline risk rather than the risk of a default.”
Newly sworn-in President Donald Trump speaks with House Majority Leader Steve Scalise and House Speaker Mike Johnson following a signing ceremony at the US Capitol. (Melina Mara /The Washington Post via Getty Images) ·The Washington Post via Getty Images
Another complexity for the path ahead is that exactly when a default occurs is hard to predict.
“The period of time that extraordinary measures may last is subject to considerable uncertainty, including the challenges of forecasting the payments and receipts of the U.S. Government months into the future,” Yellen noted in last week’s letter.
It was a nod to the fact that market will be watching essentially an educated guessing game in the months ahead about when the effect of extraordinary measures run out — and a market-rattling default could be in the offing.
One recent analysis from the Economic Policy Innovation Center authored by two former Republican Capitol Hill staffers suggested mid-June as the time to watch.
That’s an estimate that Trump himself appears to have taken to heart, often citing June as the deadline.
Other experts in the space have said it’s simply too early to project, with more estimates of the so-called “X date” likely in the weeks and months ahead.
Republicans are hoping to deal with the issue far ahead of time, perhaps in talks to avert a government shutdown in March. But whether they succeed remains very unclear.
Perhaps the only two things most players can agree on in the weeks ahead is that the X date will be unpredictable as billions flow in and out of the US Treasury — and that default could have catastrophic economic consequences.
Ben Werschkul is Washington correspondent for Yahoo Finance.
Every Friday, Yahoo Finance’s Rachelle Akuffo, Rick Newman, and Ben Werschkul bring you a unique look at how U.S. policy and government affects your bottom line on Capitol Gains. Watch or listen to Capitol Gains on Apple Podcasts, Spotify, or wherever you find your favorite podcasts.
Click here for political news related to business and money policies that will shape tomorrow’s stock prices
Read the latest financial and business news from Yahoo Finance
