IE 11 is not supported. For an optimal experience visit our site on another browser.
White House

White House details ‘severe damage’ to the economy if debt ceiling crisis occurs

The Council of Economic Advisers says a “protracted” default would cost 8 million jobs and cut the stock market in half and warns that “brinksmanship” comes with costs, too.
President Joe Biden on the South Lawn on March 28, 2023.
President Joe Biden on the South Lawn of the White House in March. Demetrius Freeman / The Washington Post via Getty Images

WASHINGTON — The White House published new calculations Wednesday warning about the potential damage to the U.S. economy and taxpayers should the government fail to raise the nation's debt limit. 

In a blog post published Wednesday and obtained first by NBC News, the White House Council of Economic Advisers identified three scenarios of varying severity: “brinksmanship,” in which negotiations run up until the June 1 deadline set by the Treasury; a “brief” default, in which the deadline is tripped but then resolved within a week; and a “protracted” default, in which the U.S. fails to raise its borrowing levels for more than a quarter. 

A protracted default, the CEA says, would result in a Great Recession-like doomsday scenario wherein 8.3 million people would lose their jobs and the stock market would fall by 45%. 

A brief default would spur 500,000 job losses, leading to a 0.3% rise in unemployment, the CEA argues. And taking negotiations to the brink would risk 200,000 job losses and drive unemployment up by 0.1%. 

In every scenario, U.S. economic growth turns negative — from a 0.3% contraction to a 6.1% contraction — leading to the beginning of a possible recessionary period. And any recession, CEA says, would be even more painful because the government could not intervene. 

“In a breach-induced recession, there would be limited policy options to help buffer the impact on households and businesses,” the White House writes. Federal and state unemployment insurance would not be expanded, and borrowing costs for consumers and the government could skyrocket, increasing the burden on taxpayers. The Brookings Institution, a Washington think tank, estimates the uncertainty could drive up the cost to service government debt by up to $750 billion. 

Asked Wednesday to assess the impact of a default on the economy, Federal Reserve Chair Jerome Powell refused to accept that any of the scenarios were possible. 

“I don’t really think we should even be talking about a world where the U.S. doesn’t pay its bills. It just shouldn’t be a thing,” Powell told reporters at a news conference after the Fed raised interest rates

And he affirmed that the tools at the Fed's disposal would not be able to blunt the effects. 

“No one should assume the Fed can really protect the economy and the financial system and our reputation globally from such damage that event might inflict,” he said. 

The Council of Economic Advisers is the White House’s Cabinet-level economic forecasting agency. Its findings are based in part on research conducted by Moody’s Analytics economist Mark Zandi.