The standoff over the US debt ceiling is an example of Washington dysfunction that could spill over into global financial markets. Bloomberg Quicktake’s Scarlet Fu explains what the debt ceiling is and why it matters.

President Joe Biden and congressional Democrats will ultimately retreat from their insistence on a “clean” increase in the federal debt ceiling, the majority of economists in a Bloomberg survey said — predicting an end to the partisan standoff with little risk of default and a limited effect on the US economy and financial markets.

Around 71% of the 51 economists surveyed last week see less than a 10% chance of a payments default, and all respondents agreed that it is more likely than not that Congress raises the debt ceiling before the US reaches its X-date, when the Treasury Department officially runs out of fiscal space. Extraordinary measures used to keep payments going could be exhausted as soon as early June, Treasury Secretary Janet Yellen has signaled.

But the economists were split on exactly how lawmakers would get there: about 40% predict Congress will establish a panel to stabilize the long-term fiscal picture, and just under a third think Republicans will be successful in exacting spending cuts out of the negotiations. Only five — under 20% — see a clean hike as the White House has demanded.

Biden and House Speaker Kevin McCarthy are set to meet on Wednesday to discuss the debt limit, and it’s unclear exactly what the California Republican will propose.

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