The U.S. will face a default on October 18, 2021, which will put its economy into a recession, according to Treasury Secretary Janet Yellen if the Congress fails to raise the debt ceiling or suspend it. A political standoff continues as the bill proposed by the House is unable to pass the Senate, run by Republicans.
Earlier, Jamie Dimon, Chief Executive Officer of JPMorgan Chase, the largest bank in the U.S., told Reuters that the firm has begun preparing for the possibility of U.S. credit default, which would affect the money markets in a wide range.
Still, the CEO expected policymakers to find a solution to avoid this “potentially catastrophic” event.
However, Moody’s maintains its ‘stable’ outlook on the US Aaa rating and expects the debt limit will ultimately be raised. The U.S. will continue to meet its debt-service obligations on time and in full.
Moreover, Mooday’s stated that despite ongoing political polarization and debt limit brinkmanship in the U.S. Congress, the firm believed the Democratic Party is likely to use the budgetary reconciliation process to raise the debt limit in time to avoid a missed interest payment.
Similar standoffs had happened in the past between the Republicans and Democrats. In 2011 during the Obama administration, the U.S. escaped defaulting in the minute, but resulted in Standard & Poor’s downgrading US government debt, from AAA to AA+, for the first time in history.
Arguments over the ceiling between two political parties also led the U.S. to shutdown non-essential government services in 2013 and 2018 as well.