White House’s Bernstein warns GOP on debt ceiling: An 'awful time to fool around'

White House chief economist Jared Bernstein warned Republicans against using the debt ceiling as a negotiating tool next year with the economy in transition and still facing the headwinds of rising interest rates and elevated inflation.

“It is always an absolute awful time to fool around with the debt ceiling the way Republicans have been talking about, but it's even worse now,” Bernstein told Yahoo Finance in an interview. “We've been talking about an economy that's in transition … headwinds, which are real. There are obviously risks of different landing scenarios. This is, this is just the absolute worst moment to contemplate own goals, of which that would be a massive one.”

House Republicans, who are set to gain control of the lower chamber in January, are expected to use the nation’s borrowing limit as leverage to push policy changes they want passed next year, setting up the potential for a standoff that could rattle markets.

“Weaponizing the debt ceiling to achieve your spending goals is the height of irresponsibility,” Bernstein said. “The reason we need to raise the debt ceiling is to pay for spending that Congress has already authorized.”

In prior years, Republicans have demanded deep spending cuts in exchange for voting to increase the debt limit. That led to standoffs resulting in government shutdowns, plunging markets and, in 2011, an unprecedented downgrade of the nation’s credit rating.

Republicans, including House GOP leader Kevin McCarthy, who is trying to round up enough votes to become House Speaker, have suggested that debt ceiling increases should be tied to substantial cuts to domestic spending and potentially reductions to Social Security and Medicare. Demands also include potential changes to immigration policies. Several Republicans have said straight up they would oppose raising the borrowing limit even if all their demands are met.

Bernstein expects the economy will continue to grow next year and doesn’t think a recession is “inevitable,” but implied failure to raise the nation’s borrowing limit, could throw the economy deeply off course.

Congress raised the debt limit by $2.5 trillion to just over $31 trillion last December. That level is expected to be reached sometime in 2023. The Treasury Department has not specified when the limit will be breached, although the agency can delay the so-called X-date by deploying “extraordinary” measures to buy time.

A lack of political urgency and a shrinking window before the holidays led Democratic congressional leaders to punt on trying to raise the debt ceiling in the lame-duck session before losing control of the House in January.