It definitely can spook the market into a correction.
The upcoming vote by Congress to either raise or suspend the debt ceiling is becoming the latest political minefield for Congressional leaders.
Failure to suspend or increase the debt ceiling before the congressional recess in August could risk a default on the nation's debt.
While a default would be unprecedented in U.S. history and have "catastrophic" economic fallout, it's still seen as a very unlikely outcome.
Still, with historic spending thanks to Covid-19 stimulus, Treasury Secretary Janet Yellen has warned that she may not have many options if Congress fails to act in time.
An upcoming vote in Congress to either raise or suspend the federal borrowing limit is becoming the latest political minefield for Democratic leaders, as they work overtime to hammer out massive spending and infrastructure bills in the coming weeks.
A two-year suspension of the debt ceiling that was passed in 2019 is set to expire at the end of this month, and Democrats do not appear to have a strategy in place yet to raise the limit to new heights or suspend it again.
"We're considering all options," House Speaker Nancy Pelosi, D-Calif., recently told Bloomberg News when asked about the Democrats' strategy.
Republicans, meanwhile, appear poised to revive the debt ceiling wars they waged during the Obama administration after four years of relative silence about the debt limit hikes passed under GOP President Donald Trump.
If a deal on the debt limit hike falls prey to gamesmanship and procrastination, the consequences could be dire.
Failure to renew the current two-year suspension of the limit, or pass a new, higher limit before the congressional recess in August could pose a risk to the fragile economic recovery and result in serious repercussions for workers and businesses alike.
While the United States has never defaulted on its debt, recent history shows that getting uncomfortably close to it can create chaos. In 2011, House Republicans' refusal to pass a debt ceiling increase led to a downgrade of the U.S. sovereign credit rating that upset financial markets.
Still, the political calculus in Congress over debt ceiling hikes is exceedingly difficult, with members in both parties reluctant to cast votes that could be seen as contributing to the massive national debt.
"Everybody knows that it has to be increased, except for the most demagogic of officials," said Fundstrat Global Advisors policy strategist Tom Block. Still, "it's one of the most politically fraught votes many members take."
For lawmakers, the vote is often a delicate balance between appearing fiscally responsible in the next election and avoiding universally acknowledged economic upheaval.
