Bank of America CEO: We are preparing for a possible US default

Paul R. La Monica, CNN

Congress is once again arguing about raising the debt ceiling, the amount of money the US government can borrow to pay its bills on time. And that means that corporate America must be prepared for the worst.

The CEO of Bank of America, America’s second-largest bank, told CNN he hopes lawmakers will address their concerns because the market and the economy love stability. Nevertheless, a default on the country’s debt remains a possibility that cannot be ignored.

“We need to be prepared for this, not just in this country, but in other countries around the world,” Bank of America CEO Brian Moynihan told Poppy Harlow on CNN This Morning on Monday. “You hope it doesn’t happen, but hope is not a strategy, so you prepare for it.”

President Joe Biden may broach the subject in an address to the US Congress on Tuesday. US Treasury Secretary Janet Yellen has already warned Congress that the country could default on its financial obligations as early as June if the debt ceiling is not raised before then.

Subsequently, Yellen said that a “global financial crisis” could occur if no agreement was reached to limit the debt. The Treasury Department is currently taking “extraordinary measures” to continue paying bills on time.

The latest drama around the debt ceiling has sparked calls for the government to get rid of it entirely. The argument is that political squabbling should not prevent the US from fulfilling its financial obligations.

Moynihan isn’t thrilled with the idea. He told Harlow that “there should be a debate about how we’re supposed to make sure we’re living within our means as a country” when asked if the US should lift the debt ceiling.

“Congress has financial resources. I would be careful trying to restructure the US Constitution,” he said. “I think we should leave it alone and make sure it works properly.”

But he acknowledged that the government needed to spend a lot more on various stimulus programs from 2020 due to the Covid-19 crisis, saying the US had to take on “a lot of debt over the past couple of years to get through the pandemic.” slow down the economy.”

The economy has rebounded sharply after a short recession caused by Covid. So much so that inflation is now perhaps the biggest problem facing the country, as well as the Federal Reserve.

The Fed has been aggressively raising rates in the past year to try to tamp down inflation. The rate hike has begun to work, but the US labor market remains remarkably strong.

“The unemployment rate remains very low. Extremely low,” Moynihan said to Harlow. “That’s one of the challenges for the Fed.”

With that in mind, Moynihan said, Bank of America is still forecasting a “mild recession” at some point in the future, but the start date keeps getting pushed back. He argues that higher rates could hurt corporate profits, but the good news is that most people are still working, making good money and spending money.

Moynihan also doesn’t seem overly concerned that geopolitical tensions between the US and China stemming from the recent spy balloon incident will have a long-term impact on the global economy.

He told Harlow that given China’s importance in the global supply chain, everyone has an interest in preventing economic tensions from escalating.

“It’s interesting to see the shadow boxing between these two countries,” Moynihan said. “But the best thing in the world is free trade.”

The-CNN-Wire
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Message from Bank of America CEO: We are preparing for a possible US default, first seen on KION546.

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