Biggest Fear Among US Business Leaders Is “Catastrophic” Debt Default: White House Economic Adviser

Authored by Tom Ozimek via The Epoch Times,

A key aide to President Joe Biden said Sunday that American business leaders’ chief concern is not inflation or recession but the looming threat of a “catastrophic” government debt default.

Lael Brainard, director of the White House National Economic Council, told CBS’ “Face the Nation” on Sunday that the country’s top business leaders have told her that their biggest concern is failure on the part of lawmakers on Capitol Hill to avert a default of the nation’s debt.

Talks about raising the U.S. government’s $31.4 trillion debt ceiling have made little progress in Washington. Biden and the Democrats continue to insist on a “clean” bill to lift the borrowing limit with no preconditions while House Speaker Kevin McCarthy (R-Calif.) and the Republicans have put forward a proposal that pairs lifting the cap by $1.5 trillion with $4.5 trillion in spending cuts.

“When I talk to CEOs, to business leaders around the country, they tell me that things are actually going very well,” said Brainard, who served as vice chair of the Federal Reserve before being appointed by Biden to lead the White House economic advisory panel.

“But their biggest concern is that Congress might fail to prevent default and that would be catastrophic. It would lead to higher borrowing costs for cars, for mortgages, for small businesses, even for the U.S. government,” she said, echoing concerns raised by other Biden administration officials that a default would lead borrowing costs to surge and be a major headwind for the economy.

Last week, Rohit Chopra, the director of the Consumer Financial Protection Bureau (CFPB), told CNN that various types of loans would, in the event of a default, become more expensive.

“It’s a big worry. Every family should be concerned,” Chopra told the outlet.

Wall Street, too, has been growing increasingly nervous amid the debt ceiling standoff. Citigroup CEO Jane Fraser saying that the negotiations on raising the ceiling are “more worrying” than previous episodes. JPMorgan Chase CEO Jamie Dimon said the bank is convening weekly meetings to prepare for what could be a major event that shakes markets.

“The closer you get to it, you will have panic,” Dimon told Bloomberg TV last week.

“Markets will get volatile, maybe the stock market will go down, the Treasury markets will have their own problems.”

While Biden has said he’s “absolutely certain” that the country will avert a default, time is running out to find a fix.

Worries about the debt ceiling standoff come amid ongoing concerns about inflation and recession.

Recession Odds Rise to Highest in 40 Years

Slowing economic growth in the United States appears increasingly likely to accelerate into a full-blown recession.

The probability that the country will enter a recession within the next year has risen to 68.2 percent, according to the New York Fed, which is the highest level since 1982.

The Fed’s recession risk indicator is now greater than it was in November 2007, not long before the subprime crisis, when it stood at 40 percent.

Amid the banking sector turmoil sparked by the recent collapse of Silicon Valley Bank, economists at the Federal Reserve expect that a U.S. recession would be shallow.

“Given their assessment of the potential economic effects of the recent banking-sector developments, the staff’s projection at the time of the March meeting included a mild recession starting later this year, with a recovery over the subsequent two years,” stated the minutes from a March meeting of the Federal Open Market Committee.

A recent poll showed that most Americans believe that the country is headed for a recession—or has already fallen into one.

The latest CNBC All-America Economic Survey showed that 69 percent of U.S. adults have negative views about the current economic environment, which is the highest figure since the survey began 17 years ago.

Inflation Expectations Jump

Several recent data points suggest that inflation has become a more entrenched problem that many believe.

Import prices rose sharply in April after falling in March, while two different inflation gauges (consumer prices and business input costs) accelerated last month despite the Fed’s yearlong campaign of interest rate hikes. Also, long-run inflation expectations have jumped to their highest level in 12 years.

U.S. import prices rose 0.4 percent last month, after falling 0.8 percent in March, according to data released Friday by the Department of Labor.