Will Markets Hit the Ceiling

We see four potential outcomes with various probabilities emerging from the debt ceiling debate over the next month.

We believe the most likely outcome by August 2 contains spending cuts, the closure of a few tax loopholes that raise revenue, and a modest change in the way Social Security benefits are calculated all totaling $1 – 2 trillion over 10 years, but no substantive entitlement reform.

The markets have largely priced in this outcome and are unlikely to make a major move in either direction if this is the result. However, dramatic moves are likely in the event of alternative outcomes.

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