June 4, 2023


A view of the House chamber as the House meets for its third day to elect a speaker and convene the 118th Congress in Washington, Thursday, January 5, 2023.AP images

  • According to Merrill strategists, lawmakers will eventually reach an agreement to prevent the US from defaulting on its debts.

  • The debt ceiling has been changed 78 times since 1960, despite political deadlocks, and this time is “probably no different,” they said.

  • “Many previous instances of debt limit deadlocks have been resolved with no significant impact on the market,” they said.

The U.S. debt ceiling has been changed 78 times since 1960 despite political deadlocks, suggesting lawmakers will eventually find a solution despite a current deadlock, according to the Bank of America’s asset management division.

“Ultimately, we believe that an agreement will be reached that prevents the U.S. from defaulting on its obligations. Many previous instances of debt limit deadlocks have been resolved without significant market impact,” Merrill strategists wrote in a note.

“Since 1960, 78 times Congress has acted to increase, temporarily extend or revise the debt limit, and this time probably no different,” they added.

There is growing concern that the US could default on its debt due to a fast-approaching deadline. Lawmakers have debated whether or not to raise the debt limit, with House Speaker Kevin McCarthy last week proposing a bill that would raise the borrowing limit by $1.5 trillion while cutting spending by $4.5 trillion.

Meanwhile, Treasury Secretary Janet Yellen has warned of “an economic and financial catastrophe” if the US fails to pay its debt obligations – with possible mass unemployment and failed payments – and urged politicians to raise the ceiling and not “until it last moment”. to do this.

“Any uncertainty about the timing and outcome of the resolution adds to a volatile backdrop already tied to a recovery in earnings and a slowdown in growth,” said Merrill’s chief investment firm.

Meanwhile, the US Treasury Department has taken “extraordinary” measures to sidestep an immediate fiscal crisis. Those measures will likely only last a few more months, the Congressional Budget Office previously predicted, and the US could default as early as this summer if policymakers don’t take action.

Read the original article on Business Insider