"The Debt Limit Is Going To Be A Problem": Goldman's 2023 Political And Policy Outlook

Excerpted from the latest report by Alec Phillips, chief political economist at Goldman Sachs

• The 118th Congress got off to a rocky start and we expect last week’s political uncertainty to return several times over the course of the year, in light of recent rules changes, the extremely thin margins of control in the House, and a divided Congress.

• Fiscal deadlines will pose a greater risk this year than they have for a decade. Congress will need to raise the debt limit before it binds—potentially by August and very likely by October—and renew government spending authority by Sept. 30 to avoid a government shutdown. A close call seems likely on both issues and it is more likely than not in our view that at least one of these two risks will materialize this year.

• Lawmakers are likely to continue to focus on tightening US-China policy, and we believe there is still substantial support among Republicans for Ukraine military support, though it has frayed around the edges.

• There also appears to be a fair chance of a narrow package of energy-related reforms. While we do not expect changes to the substantial renewable energy subsidies under the Inflation Reduction Act this year, we see risks over the medium term.

• Outside of Congress, changes to federal labor regulations also look likely to move forward this year and could have a macroeconomic effect. That said, we do not expect those policies to come into play until late this year, at earliest, and possibly not for quite a while longer if they face legal challenges.

2023 Political and Policy Outlook: Murky