White House National Economic Council Director Lael Brainard recently said that a “catastrophic” federal debt default is the biggest worry for American business leaders, not inflation or the economy.
Biden and the Democrats have insisted on a “clean” bill to raise the borrowing limit without preconditions, while House Speaker Kevin McCarthy (R-Calif.) and the Republicans have proposed a plan that pairs lifting the cap by $1.5 trillion with $4.5 trillion in spending cuts, leading to a stalemate in Washington over whether or not to raise the $31.4 trillion debt ceiling.
Officials in the Biden administration have expressed concern that a default would increase borrowing prices for everything from automobiles and homes to small businesses and the federal government. Citigroup CEO Jane Fraser has said that negotiations on raising the ceiling are “more worrying” than prior incidents, reflecting the mounting anxiety on Wall Street due to the deadlock. To get ready for what may be a market-shaking incident, JPMorgan Chase CEO Jamie Dimon says the bank is holding weekly meetings.
Due to sluggish economic development, the debt ceiling dispute is a severe concern. According to the New York Federal Reserve, the likelihood of a recession occurring during the next year has increased to 68.2 percent. Recession risk has increased for the first time since November 2007, just before the start of the subprime crisis, according to the Federal Reserve. A recent survey found that 69% of U.S. adults had pessimistic views about the present economic environment, with the majority believing that the country is either entering or is already in a recession. New evidence suggests inflation is more profound and more widespread than previously thought.
Despite the Federal Reserve’s yearlong campaign of interest rate hikes, import prices jumped strongly in April, and two independent inflation gauges (consumer prices and business input costs) advanced last month. Inflationary projections have increased to their highest point in 12 years. The 23% drop in consumers’ outlook for next year indicates widespread concern that the current economic slowdown will not be temporary. Consumer optimism and long-term inflation forecasts were lower than expected in the latest survey data from the University of Michigan, suggesting that Americans are growing pessimistic about the economy. About two-thirds of GDP growth in the United States may be attributed to consumer spending.