The White House offered analyses of the potential economic impacts of several debt ceiling scenarios, including a brief default and a protracted default.
An analysis by Moody’s shows that a short debt limit breach could increase the unemployment rate from the current level of 3.5 percent to nearly 5 percent, lead to job losses of nearly 2 million and result in a drop in real gross domestic product, the White House said Wednesday.
The Council of Economic Advisers conducted a simulation of the impact of a protracted default and predicted that the stock market could drop 45 percent by the third quarter of 2023. A protracted default scenario could also harm consumer and business confidence, while unemployment could jump 5 percentage points as companies cut jobs and consumers reduce consumption.
“The ability of households and businesses, especially small businesses, to borrow through the private sector to offset this economic pain would also be compromised. The risks engendered by the default would cause interest rates to skyrocket, including those on the financial instruments that households and businesses use—Treasury bonds, mortgages, and credit card interest rates,” the White House statement reads.
Treasury Secretary Janet Yellen wrote a letter to House Speaker Kevin McCarthy on Monday urging Congress to raise or suspend the debt limit before June.
“Given the current projections, it is imperative that Congress act as soon as possible to increase or suspend the debt limit in a way that provides longer-term certainty that the government will continue to make its payments,” Yellen wrote.