Pimco: The debt ceiling deal is like passing a kidney stone

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Investors are concerned about the debate over the debt ceiling in Washington. Stocks fluctuated all week, halting their recent AI-induced rally, and the one-month Treasury yield — which is ripening as the government may default on its debt in June — topped 5.6% on Wednesday, the highest since Pre-Global. The financial crisis of 2007.

It is a sign that traders are avoiding government bonds due to serious concerns about a US debt default. Treasury Secretary Janet Yellen has warned that as soon as June 1, the so-called X date, the US government may run out of money and an economic “disaster” may follow. But Libby Cantrell, managing director and head of public policy at Pimco, still believes lawmakers will cut a deal and avoid a worst-case scenario.

“It is our view — with great conviction — that the recent and now interrupted negotiations will result in a debt ceiling agreement before the US Treasury’s ‘Date X’ on June 1,” she wrote in the article, and financial times first reported.

Cantrell argued that making concessions for the sake of an agreement may not be politically beneficial to lawmakers, and could lead to a “last-minute deal”, but “neither side has any political incentive to default.” This means that even if there is last-minute drama, the debt ceiling deal will eventually get through.

“To use an apt, albeit figurative, analogy: going over the debt ceiling is like passing a kidney stone — we know it will pass, it’s just a matter of how painful it is. We’ll stress that we’re in the painful period now,” she wrote.

Cantrell’s view is a popular view on Wall Street and among the world’s leading economists, despite recent signs of investor fears of defaults in the stock and bond markets. Even Jeremy Siegel, a professor at the Wharton School of the University of Pennsylvania, argued in his Tree of Wisdom commentary this week that “there is no zero chance that the debt problem will not be resolved even though there are positions and discussions until the last minute.”

However, lawmakers are debating on a number of issues and haven’t made much progress. On Wednesday, House Speaker Kevin McCarthy told reporters at a briefing that negotiations with the Biden administration had stalled because of a row over GOP-proposed spending cuts.

“I’m going to send our negotiating team to the White House to try to finish the negotiations,” he said. “The slope here is to solve the problem — spend less than we spent last year. It’s not that hard.”

Rep. Garrett Graves, a Louisiana Republican who is a negotiator in the talks, said the White House wanted to maintain current spending levels, but Republicans “have made it clear that that hasn’t been working.”

Democrats, who had previously objected to Republican pressure for labor requirements for federal aid programs, hit back after Wednesday’s news conference. House Minority Leader Hakeem Jeffries has argued that GOP spending cuts have been “draconian.” Wall Street Journal mentioned. White House press secretary Karen Jean-Pierre added that there are several “extreme proposals” — including more outlandish issues such as reform of permitting energy use for both conventional and clean energy and changes to how Medicare pays providers — that she feels the administration will hurt. every part of the country.”

Despite the conflict, McCarthy said he was still hopeful that progress would be made in the negotiations this week, adding, “We will not default.”

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