Wall Street banks warn of worst debt ceiling debate since 2011 crisis
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Wall Street banks, including JPMorgan and Goldman Sachs, are warning that Washington is heading for its “riskiest confrontation” over raising its debt ceiling since 2011, when S&P first downgraded the US credit rating from AAA to AA+. The fight for the debt ceiling could be the most important issue facing the US economy in 2023, according to a JPMorgan statement quoted by the Financial Times.
The U.S. debt ceiling crisis occurred in the summer of 2011 and was triggered by a sharp increase in federal spending following the 2008 global economic crisis. It had a big impact on financial markets, with the Dow Jones Industrial Average down about 2,000 points in two months. In addition, as a result of the crisis, the country’s credit rating was downgraded by one level – to AA + on the scale of the S&P agency.
In recent years, Congress has had a lot of controversy over lifting the limit, and has never defaulted on its debt. But as JPMorgan’s chief US economist Michael Feroli told the FT, it could be harder to strike a deal this time around to avoid a default. The consequences of a default are difficult to predict, he added, but it is likely that it could lead to a “serious recession.”
“Even at best, there will likely be brinkmanship, as happened during the 2011 debt ceiling crisis,” Feroli said.
Alec Phillips, chief political economist at Goldman Sachs, also notes the similarity of the current situation to that of 2011. “Since 2011, we have the highest risk of debt limit problems,” he told the publication. This time around, the US is in debt – more and higher interest rates, he said.
By contrast, Pablo Villanueva, senior US economist at UBS, says “this is a slightly different debt ceiling episode” because the Fed is pursuing quantitative tightening and moving cash out of the economy very quickly after years of monetary easing.
The US government last week began taking emergency measures to meet its obligations after the country hit its $31.4 trillion borrowing limit. The Republican majority in the House of Representatives demanded massive budget cuts in exchange for a higher debt ceiling. The White House and the Democratic majority in the Senate say this is not a solution.
More details – in the material “Kommersant” “ceiling cover”.
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