Debt ceiling worries start to rattle Wall Street

Market concerns: A vendor sells replicas of the Wall Street Bull outside the NYSE. Some signs of nervousness are showing in US markets as the Congress faces a pair of approaching deadlines to fund the government and address the nation’s debt ceiling. — AFP

NEW YORK: The slim-but-growing possibility of a fiscal crisis if Congress doesn’t act on the debt ceiling is getting increasing attention from US investors and is filtering into certain asset prices, though few believe the nation will ultimately default.

Warnings have been rung from policymakers to Wall Street bankers of the risk that talks go down to the wire.

Jamie Dimon, chief executive of JPMorgan Chase & Co, said the bank is preparing for what could be a “potentially catastrophic event,” while New York Federal Reserve Bank president John Williams warned of potential negative market reaction if no solution is found to the debt-ceiling issue.

“There’s a very packed legislative calendar over the next few weeks and there are significant tail risks in the short term,” said Jon Adams, senior investment strategist for BMO Global Asset Management. “Our view is that ultimately cooler heads will prevail.”

Some signs of nervousness are showing in US markets as the US Congress faces a pair of approaching deadlines to fund the government and address the nation’s US$28.4 trillion (RM118.9 trillion) debt ceiling.

It has a Sept 30 deadline to avert the start of a shutdown of government services.

Secretary Janet Yellen has urged Congress to act before Oct 18 to avert “serious harm” to the economy.

“If the government shuts down that’s not a big deal, but if they continue to play games with the debt ceiling that can cause big problems” and lead to a significant selloff throughout financial markets, said Randy Frederick, managing director of trading and derivatives for the Schwab Centre for Financial Research.

The mounting possibilities that Congress could fail to act in time to prevent a shutdown or debt default were cited by some as contributing to equity weakness in recent days.

In currency markets, some analysts believe worries over the debt ceiling have helped boost the US dollar.

The situation remains at an impasse. Democrats in Congress on Wednesday said they would vote to head off an imminent government shutdown before funding expires at midnight yesterday.

The House and Senate may vote on a separate bill that temporarily lifts the debt limit, but Senate Republicans refuse to vote for it. — Reuters