2.6 million Americans could lose their jobs if the GOP cuts spending in a debt ceiling deal, a new report says

• A Moody's analysis said GOP spending cuts in a debt ceiling increase could cost Americans 2.6 million jobs.
• Sen. Elizabeth Warren cited the report in a letter to Biden, saying Republicans are risking a recession.

A recession — and millions of jobs losses — could be on the horizon if Congress doesn't reach a clean deal to raise the debt ceiling.

On Tuesday, Moody's Analytics released an analysis on what could happen if Republicans fail to reach a deal to raise the debt ceiling before the US runs out of money to pay its bills, which could happen as soon as July. House Republican lawmakers have expressed their intent to negotiate a deal to raise the debt ceiling to achieve spending cuts on Democratic priorities, but those negotiations appear to be stalled — and the country is inching closer to a catastrophic default.

The analysis suggests that even if a default is avoided, the kinds of spending cuts the GOP is demanding could still lead to a big economic downturn. Moody's economists Mark Zandi, Cristian deRitis, and Bernard Yaros predicted that if Republicans achieve a "dramatic reduction in government spending" while leaving Medicare and Social Security off the table, as they have vowed to do, it could trigger "a recession in 2024, costing the economy 2.6 million jobs at the worst of the downturn and pushing unemployment to a peak of near 6%."

Massachusetts Sen. Elizabeth Warren cited the analysis in a letter to President Joe Biden, urging him to "put forward a budget this week that rejects Republican calls for tax breaks for the wealthy and massive job losses for everyone else."

"The Republican approach to the debt ceiling will either result in a catastrophic default and an economic recession - or massive cuts to key government programs that destroy millions of jobs. You must reject both options," Warren wrote.

"Republican-imposed austerity would mean the U.S. economy in 2033 would still be short nearly 1 million jobs and 3 percentage points of GDP growth – as if our economy stood completely still for a year," she added. "In fact, the economic impact would be so great, that it would result in even more job losses than a short-lived debt ceiling breach, in both the short- and long-term."

It's hard to know exactly what would happen if the US defaults on its debt, because it's never happened before. One thing that's clear is that the economic picture won't be pretty. A default could mean a historic financial crisis, one that drags down the rest of the world, too, as the market for US government debt is a key aspect of global finance.

If there were to be a default, Moody's sees two scenarios. There could be a shorter default that would quickly lead to Congress passing a debt ceiling increase, which sends the US into a mild recession at the end of year as 1 million jobs are lost, or a prolonged breach, which would lead to the loss of 7 million jobs, and household wealth falling by $10 trillion as stock prices tank by nearly a fifth.

Warren is holding a hearing on Tuesday afternoon to discuss the "disastrous impacts" of a debt default, including testimony from Moody's Analytics Chief Economist Mark Zandi.

"Lawmakers have a lot of work to do," Zandi told Insider. "They need to increase, suspend, or do away with the debt limit by mid-August — or the government won't be able to pay all its bills, and that'll create chaos in financial markets and push the economy into recession. The next six months are going to be drama filled."

As Insider previously reported, Republican lawmakers have yet to detail where exactly they want to cut spending in a debt ceiling deal, but they have floated some ideas. Those include cuts to student-debt relief programs and welfare programs like SNAP, while vowing to leave Medicare and Social Security untouched in these negotiations.

Still, Biden has insisted the process to raise the debt ceiling be bipartisan and without negotiations, and Federal Reserve Chair Jerome Powell reiterated the importance that Congress act during a Senate Banking Committee hearing on Tuesday.

"At the end of the day, there's only one solution to this problem, and that is Congress — whatever else may happen will happen — but Congress really needs to raise the debt ceiling," Powell said. "That's the only way out in a timely way that allows us to pay all of our bills."