The Democrats' sweep in Tuesday's elections creates a new source of uncertainty in the debt limit fight, CNBC reports. Unless a defeated Republican Party unites quickly to remove the issue before its final weeks in power, the coming fight is expected to be more contentious than past episodes.
Previous debt limit standoffs saw Republicans demand budget cuts from Democratic presidents. This time, the report says, the left will likely seek concessions from the right. Aniket Shah, head of Washington policy at the investment bank Jefferies, said many in the markets underestimate how aggressively Democrats plan to act.
The report says the debt limit is a must-pass bill, which gives the incoming Democratic majority in Congress leverage against a president who has pledged to veto their agenda. It also says a deal would more likely increase government spending than lower it.
Congress last set the limit in 2025, giving the Treasury authority to borrow $41.1 trillion. The Bipartisan Policy Center, a nonprofit that tracks the issue, expects the Treasury to hit that limit by midsummer. Wall Street estimates say budgeting techniques could push the X-date, when the U.S. could no longer meet all its obligations, to the fourth quarter of 2027.
Shah and others on Wall Street expect the episode to cause volatility but eventually end in compromise. Robert Sockin, chief U.S. economist at the asset manager PGIM, said the path to a deal may be rocky and could resemble the 2025 government shutdown.