The Debt-Ceiling Deal: Will a Default Be Averted? - Adviser Investments

The Debt-Ceiling Deal: Will a Default Be Averted?

A view of the Capitol Building to represent the debt ceiling debate

Over the weekend, President Biden and House Speaker McCarthy struck a deal on the debt limit. This is good news and it dramatically improves the odds that a U.S. default will not occur. We are not out of the woods yet, though, as the deal needs to be approved by the House and Senate. The House is expected to vote on the proposed bill later today. Passage in the House will send the bill to the Senate for a vote, and the debt-ceiling debacle could be resolved by the end of the week if all goes well.

If approved, the latest version of the bill suspends the debt ceiling rather than raising it and will allow the federal government to borrow money until 2025, well past the next presidential election. The bill is a compromise that includes:

  • Limits on overall spending but not on defense
  • Returning unspent COVID-19 relief funds
  • Adding stricter work requirements for government food and healthcare programs
  • New rules to make it easier for energy projects to get approved

Party leaders believe they have the votes to get the bill passed, but that doesn’t mean a resolution will necessarily come immediately and without drama and market volatility.

We’re prepared for any outcome in terms of how we are managing your investments and planning for your financial future.

As these events unfold over the next few days, we continue to believe a U.S. default is highly unlikely. Still, we think it is prudent to evaluate and prepare for any worst-case scenario and continue to look for ways to manage potential risks. For example:

  • We have done a deep dive on the stability of the money market funds where our clients are invested to ensure there is ample liquidity available in times of market stress
  • We have our stock and bond portfolios currently positioned more defensively, as we see current downside risks as greater than upside
  • Diversification remains a foundational belief and our portfolios are well allocated across asset classes and market segments to help smooth the ride

As always, thank you for the trust you’ve placed in us. Please call your wealth advisor if you are worried about the debt-ceiling proceedings or have any other questions or concerns.

For informational purposes only. The investment ideas and opinions contained herein should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Information in this report is obtained from what we believe to be reliable sources; however, its accuracy, completeness or reliability cannot be guaranteed. Our statements and opinions are subject to change without notice and should be considered only as part of a diversified portfolio.

Past performance is not an indication of future returns. Always consult with a financial professional before taking any specific action.

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