Bank of America CEO Brian Moynihan warns to prepare for a US debt default and a recession that will drag down corporate earnings
A US debt default is still an uncomfortable possibility, according to BofA CEO Brian Moynihan.
"You hope it doesn't happen, but hope is not a strategy – so you prepare for it," he warned in an interview with CNN.
BofA has been warning for months of a recession that could drag earnings and the economy down.
Prepare for a US debt default and a recession that will drag down corporate earnings, according to Bank of America CEO Brian Moynihan.
In an interview with CNN on Monday, the head of the second-largest US bank said he hoped the government wouldn't slip into default on its debt. But it's a possibility, he warned, one which could rattle markets and the economy.
"We have to be prepared for that, not only in this country but in other countries around the world," Moynihan warned. "You hope it doesn't happen, but hope is not a strategy – so you prepare for it."
That ominous warning comes shortly after the US hit its $31.4 trillion borrowing limit in January, which prompted the US Treasury to implement "extraordinary measures" to prevent the nation from defaulting on its debts. The measures will last until June, leaving Congress with little over four months to either raise the debt ceiling or risk a financial meltdown and epic stock market crash, experts say.
But talks to over the government's budget are making little progress, with Republicans and Democrats sparring over possible spending cuts if the US is to raise the debt ceiling.
Moynihan noted the US has needed to borrow more in recent years due to extraordinary circumstances, like the COVID-19 crisis, but he shot down suggestions made by other commentators that the US government should scrap the debt ceiling completely.
"[T]here's got to be an argument about how we make sure we live within our means as a country," the executive said in the interview.
Moynihan added that Bank of America is still expecting a mild recession to hit the economy, as inflation and high interest rates are still a huge concern. Central bankers have raised rates 450 basis-points to lower high prices, but rates that high could drag on corporate earnings and send the economy into a downturn, Bank of America previously warned.
Strategists predicted that a recession could send the S&P 500 falling 24% in the early half of this year. That's similar to estimates from Morgan Stanley, which predicted an earnings recession could send stocks 20% lower.
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