As President Joe Biden prepares for a second debt-ceiling meeting with the top four U.S. lawmakers, analysts are predicting that a deal isn’t imminent.
“Statements leading into the White House meeting this afternoon indicate a contentious stalemate dragging out over months,” said 22V Research’s Kim Wallace and Sandra Namoos in a note on Tuesday.
“We continue to see the likelihood of a series of short-term suspensions this month and through the summer to accommodate negotiations. Partisans on each side aren’t yet interested in quick settlement of differences.”
Other analysts are also expecting short-term increases or suspensions of the federal borrowing limit in order to provide the Biden administration and Congress with more time to come up with an agreement.
Treasury Secretary Janet Yellen on Monday reiterated that June 1 could be the date when the U.S. may become unable to pay its bills in the absence of a debt-ceiling increase. She then issued a fresh warning Tuesday about the consequences if Congress fails to raise the borrowing limit, saying “the U.S. economy hangs in the balance” if lawmakers don’t act.
DJIA,
traded mostly lower Tuesday as investors waited for news on the negotiations.
House Speaker Kevin McCarthy and his fellow Republicans have been demanding spending cuts in exchange for raising the ceiling for federal borrowing, while Biden and his fellow Democrats have said the lift should be made without conditions.
While a breakthrough in the standoff hasn’t happened yet, there is increasing chatter about the potential for a bipartisan deal that ends the stalemate and avoids a market-shaking default.
See: Debt-ceiling standoff: Here’s what could go into a bipartisan deal
And read: Here’s where investors may hide as U.S. debt-ceiling deadline looms
In August 2011, lawmakers approved an increase to the limit just hours before a potential government default. Within days, the U.S. lost its triple-A credit rating from S&P for the first time in history, with the ratings agency saying the American political system had become less stable. Stocks plunged in August 2011 following that downgrade.
Analysts at Deutsche Bank are giving a low chance for a U.S. default.
“We see roughly 60% probability of a short-term extension pushing the X date to September 30 or slightly beyond, 30% probability of a resolution by early June, 8% probability of no action by Congress resulting in Biden invoking the use of the 14th Amendment, and 2% probability of an outright Treasury default,” said DB’s Steven Zeng and Brett Ryan in a note on Monday.
Related: Debt-ceiling solution? The 14th Amendment, explained.
And see:A U.S. debt-ceiling suspension could trigger a rally for the dollar
Besides Biden and McCarthy, the other participants in Tuesday’s meeting — scheduled for 3 p.m. Eastern — are slated to be Senate Majority Leader Chuck Schumer, a New York Democrat; House Minority Leader Hakeem Jeffries, also a New York Democrat; and Senate Minority Leader Mitch McConnell, a Kentucky Republican.
