US President Joe Biden will hold a new round of talks with congressional leaders later on Tuesday to discuss the debt ceiling impasse, the White House has announced.
The face-to-face negotiations, which will take place at 15:00 Washington time (19:00 GMT), will be attended by House Speaker Kevin McCarthy, Senate Minority Leader Mitch McConnell, House Democratic Minority Leader Hakim Jeffreys, and Senate Democratic Majority Leader Chuck Schumer. Other details of the upcoming discussions have not been disclosed.
Will Tuesday Talks Result in a Deal?
David Tawil, attorney and co-founder of Pro-Chain Capital, has meanwhile told Sputnik that investors will be holding their breath until the negotiators on Tuesday “come out and uniformly say we have a deal.”
“And even then, they have to pay for it and so forth. I think, in terms of the way investors think about this, the upside downside risk on this is incredibly […] crazy,” Tawil said.
"But if we do default, a calamity is beyond calculation. It's just the fear and the panic ... But unfortunately, the ramifications or the instantaneous reaction in the markets is going to be so great that I think the domino effect will almost be - we won't be able to recover from it. This will be a permanent shift in the standing of the United States, its credibility, and the US dollar, forever and ever," the Pro-Chain Capital co-founder argued.
He was partly echoed by Linwood Tauheed, associate professor of economics at the University of Missouri-Kansas City, who warned of a residential recession in real estate across the US if the country defaults on its debt.
The professor pointed out that the scenario will come “as a result of the Federal Reserve's interest rate hikes, [also] pushing the entire [US] economy into recession.”
He added that “one of the things that this recession in real estate is going to do is to further make the big banks bigger” as “they make fewer banking options out there for for regular persons."
Yellen Reiterates Debt Ceiling Deadlock Warning
In the meantime, Treasury Secretary Janet Yellen has reiterated her warning that if Congress doesn’t act, the US could default on its debt obligations already early next month.
At the same time, Yellen added that the actual date could be a number of days or weeks later, depending on how much revenue the federal government collects and how much it has to pay out in coming weeks.
Investors Urged to Buy US Treasuries Amid Debt Limit Crisis
The Treasury Secretary’s remarks came as Alex Wolf, Asia head of investment strategy at JPMorgan Private Bank, told a US news agency that with the American debt ceiling talks expected to go down to the wire, investors should shun stocks and instead buy treasuries.
"It could be said that time is running out for them. There are not many days left for talks," Wolf said, in an apparent nod to developments late last week, when the Biden administration and the Republican-led House of Representatives held talks over the weekend about lifting the $31.4 trillion borrowing limit.
He insisted that the best-case scenario so far is “some sort of agreement to postpone it for talks to continue, maybe a month, maybe two months – but it will probably go down.”
"Given that we expect continued volatility, we are recommending hedging downsides from an equity perspective, especially given that we have very expensive valuations in equities this year against a backdrop of rate hikes and inflation. There’s been more of an uptick than anyone expected, given the risks of a recession," Wolf said.
This followed Yellen, in turn, writing in a letter to Congress earlier this month that “after reviewing recent federal tax receipts, our best estimate is that we will be unable to continue to satisfy all of the government’s obligations by early June, and potentially as early as June 1, if Congress does not raise or suspend the debt limit before that time."
With the House GOP members demanding that a rise in the debt ceiling be linked to spending cuts, and Biden seeking to rule out any such preconditions, the standoff is expected to persist in the coming days. Since January, the US has been operating under "extraordinary measures" after the country hit its $31.4 trillion debt limit.