Debt Ceiling: How The Fed Fuels Washington's Spending Spree, 'Ending It Is Probably A Good Thing,' Says Expert

Economist Craig Shapiro argues that the debt ceiling, a mechanism only used by the U.S. and Denmark, fails to curb excessive government spending and instead creates political theater every few years.

What Happened: Shapiro, who is a macro strategist at the Bear Traps Report highlights the Federal Reserve's role, noting its consistent interventions in the bond market.

According to him, these interventions, which include providing liquidity during market hiccups, have enabled Washington's unchecked spending by ensuring stable market function for U.S. Treasuries.

The Fed's actions, Shapiro contends, remove market discipline, as Congress and administrations rely on the Fed to backstop their fiscal policies, a dynamic he says has fueled deficit spending.

Recent data support this concern as the U.S. federal debt has nearly tripled since 2009, with the Treasury Department frequently hitting the congressionally mandated borrowing limit, according to the Council on Foreign Relations.

Shapiro suggests that if the Fed stepped back and allowed "bond vigilantes"—investors who sell bonds to protest fiscal policy, raising borrowing costs—to act, market forces could pressure Washington to curb spending, a tactic seen in emerging markets with unsustainable deficits.

“Ending it is probably a good thing but really won’t stop the spending in DC,” says Shapiro.

Why It Matters: Without the debt ceiling, Shapiro warns, the Fed's role as an enabler must be addressed to impose real fiscal discipline on Washington.

Current Fed policy adds complexity, with the federal funds rate held at 4.25% to 4.50% in May 2025, and markets expecting two 0.25% rate cuts by year-end.

As of the publication of this article, the 10-year Treasury bond yielded 4.35% and the two-year bond was at 3.87%. The CME Group's FedWatch tool‘s projections show markets pricing a 95.6% likelihood of the Federal Reserve keeping the current interest rates unchanged in its June meeting.

The SPDR S&P 500 ETF Trust SPY and Invesco QQQ Trust ETF QQQ, which track the S&P 500 index and Nasdaq 100 index, respectively, rose in premarket on Thursday. The SPY was up 0.099% at $596.52, while the QQQ advanced 0.093% to $529.26, according to Benzinga Pro data.