The Treasury Department stated that the inability to pay off debts could occur as early as June 1. According to forecasts, Treasury cash could drop below $30 billion between June 8 and 9, which is the lowest balance the Treasury has previously used to predict deadlines.
Goldman Sachs believes that Congress will avoid delaying until the deadline. The most likely scenario is reaching a comprehensive agreement to suspend both the debt ceiling and spending caps until early 2025 (70% probability). An agreement may be reached later next week (30%) or shortly before the deadline (30%).
The likelihood of failing to reach an agreement by the deadline is much lower (25% probability). If this happens, the most probable outcome would be a short-term extension (15%). Otherwise, the Treasury will face difficult choices: either halting most payments while continuing to service debt (6%), or continuing to borrow beyond the limit to make all scheduled payments (4%).
If cash flow turns out better than expected, there is a very small chance (5%) that the Treasury could push the deadline to July. However, there remains a clear risk of default between June 8 and 9.
Financial markets remain relatively optimistic about the upcoming debt ceiling deadline. [Goldman Sachs]
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