The CEO of America's second-largest bank, Bank of America Corp (BAC), has stated that a default on the country's debt cannot be ruled out.
"We have to be prepared for that, not only in this country but in other countries around the world," BAC CEO Brian Moynihan told Poppy Harlow on "CNN This Morning" Monday. "You hope it doesn't happen, but hope is not a strategy - so you prepare for it."
Once again, Congress is arguing about raising the debt ceiling, the amount of money the United States government can borrow to pay its debts on time. Consequently, corporate America must be prepared for the worst.
The most recent controversy surrounding the debt ceiling has prompted calls for its complete elimination. It is argued that political disputes should not hinder the United States from honoring its financial obligations.
President Joe Biden may mention the subject in his State of the Union address on Tuesday. Treasury Secretary Janet Yellen has already cautioned Congress that the United States could default on its financial obligations as early as June if the debt ceiling is not increased prior to that date.
Yellen subsequently stated that a "global financial crisis" may occur in the absence of a debt ceiling resolution. The Treasury Department is currently employing "extraordinary measures" to continue timely bill payments.
Moynihan noted, however, that the government has had to spend significantly more on different stimulus initiatives since 2020 owing to the COVID-19 pandemic, stating that the United States had to incur "a great deal of debt over the past few years to overcome the economic drag of the pandemic."
The economy has significantly recovered from the depths of the brief Covid recession. Inflation has become so severe that it is now possibly the greatest challenge facing the country and the Federal Reserve.
The Fed has rapidly raised interest rates over the past year in an effort to stifle inflation. The rate hikes have begun to take effect, but the U.S. labor market remains astonishingly robust.
"The unemployment rate has stayed very low. Extremely low," Moynihan told Harlow. "That's one of the challenges for the Fed."
With this in mind, Moynihan stated that BAC continues to forecast a "mild recession" in the future, but the start date is getting pushed out. He says that increased interest rates could be detrimental to business earnings, but the good news is that the majority of people are still employed, earning excellent wages, and spending.
