U.S. Debt-Ceiling Scenarios: 4 Different Ways the Negotiations Could Play Out

Executive summary:

  • Negotiations among lawmakers in Washington, D.C., to raise the debt ceiling might trend in a more favorable direction.
  • If a deal is not reached by the June 1 deadline, markets are likely to sell off, which would likely force politicians to quickly reach a solution.
  • Any impasse on a debt-ceiling deal is likely to be brief and could potentially create opportunities for tactical investors to take advantage of the dislocation in asset prices.

Debt ceiling scenarios

I rarely find political prognostication to be a fruitful exercise. Politics are mostly noise for markets. But, in this case, the debt ceiling negotiations in Washington, D.C., are already creating market volatility and have the potential to do real damage. It’s hard to ignore. In this article, we will briefly detail the new developments since Erik Ristuben’s report a week ago. And then we will walk through the scenarios of what could happen—ranging from the best case (a prompt deal) to the worst case (a prolonged impasse).