What the US Debt-Ceiling Battle Means for Your Money

Treasury Secretary Janet Yellen has declared that the US has hit its federal debt limit, kicking off an intense political battle that puts the global financial system at risk.

Congress and the White House have until at least early June to resolve the issue, and in the coming months investors will begin to see the impact of a possible US default on its payment obligations. Here’s what the fight could mean for jobs, stocks, bonds, your tax refund and more.

Q: What is the debt ceiling?

It’s an overall limit — currently set at almost $31.4 trillion — on how much debt the Treasury Department can issue. Raising the ceiling lets the government borrow to cover the gap between spending and taxes already approved by Congress. Yellen announced Thursday that Treasury would deploy accounting measures to avoid missing payments to bondholders. These moves will likely work through early June.

Q: What’s the issue now?

A group of Republicans in the House of Representatives wants to force President Joe Biden to agree to cuts in spending by threatening not to raise the debt limit. The White House argues the debt ceiling shouldn’t be conditioned on any other action. An impasse has ensued.

Q: What does it mean for stocks and your 401(k)?

Most analysts believe the US will avoid a default, so the effects of a political showdown on stock values would be temporary.

“The political squabbles in the coming weeks will likely lead to stock market volatility,” said Shane Sideris, co-founder of Synchronous Wealth Advisors in California. “But, for long-term investors, there is nothing to worry about. The debt ceiling has been raised 45 times in the last 40 years.”