As the drop-dead date to raise the nation’s $31.4 trillion debt ceiling looms with no deal in sight, traders and executives are starting to get nervous that Biden and Republicans won’t resolve the impasse until it’s too late.
NEW YORK — For months, Wall Street has barely focused on the possibility that the government might default on its debt. It’s paying attention now.
How Wall Street investors react to a possible default is crucial because they’re the ones who finance the country’s enormous debt by buying the securities that Treasury sells to fund the government. If they shy away from the market, interest rates could skyrocket, squeezing the government, businesses and consumers.
“Debt ceiling negotiations are essentially nowhere,” Brian Gardner, chief Washington policy strategist at investment bank Stifel, wrote in a note to clients. Gardner added that while a last-minute deal could certainly emerge, “the GOP’s narrow majority and the Speaker’s tenuous political position make the pathway to an agreement more uncertain than usual.”
Darrell Cronk, chief investment officer of Wells Fargo’s wealth and investment management division, said his biggest worry is that the “X-Date” — the moment when emergency moves to forestall default are exhausted — gets pulled forward to early-to-mid June with 2022 tax receipts likely weak after a brutal year for markets.due to a steep reduction in capital gains revenue.
Following McCarthy’s address, congressional Republicans urged bankers to press Biden to engage with the GOP.of Ohio said in an interview. “We’ll just say, ‘Look, it’s a two-party system. And Kevin McCarthy gets to make the first shot across the bow, but they need to put pressure on Joe Biden, to the extent they’re able to, to actually come to the negotiating table.
“Wall Street and business need to start getting energized and put pressure on Republicans to do what we’ve done all these years, which is pay for the debt that we incurred and not hold the American people hostage,” said Rep.Senate Banking Chair said he was confident Wall Street would eventually speak up. “But I think that it’s telling that McCarthy went to Wall Street to talk about all this because he’s Wall Street’s guy,” Brown added. “So we’ll see.
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