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New York Fed’s Williams cautions of debt-ceiling risk to markets By Reuters


© Reuters. FILEPHOTO: John C. Williams (president and CEO of Federal Reserve Bank of New York) speaks at Economic Club of New York’s Manhattan borough, U.S.A, on March 6, 2019. REUTERS/Lucas Jackson/File Photo

By Jonnelle Marte

NEW YORK (Reuters) – New York Federal Reserve Bank President John Williams on Monday warned of the potential negative market reaction if the United States failed to solve its debt-ceiling issue, but said market participants right now seemed to think the problem would be resolved.

Two deadlines are approaching for Congress in the United States to finance the government and resolve the $28.4 billion debt ceiling. The deadline for Congress to stop the government shutdown is Sept. 30,

Independent analysts have warned that the U.S. Treasury Department will likely exhaust its borrowing power between October 15 and November 4, which could lead to a government default.

Williams answered a question about possible disruption to markets if there was a default and the debt limit remains unresolved.

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Williams stated that “we’re not expecting that” and that he wasn’t predicting it during Monday’s video chat with reporters. “I just said that, you see, if your government didn’t pay its obligations or crossed that line, that would cause a negative dynamic in America and around the world.”

Williams stated that there is some market pricing around U.S. Treasury bills as they mature. This occurs “around the time people expect” to reach the debt limit.

He said, however, that market participants are confident “that this problem will be solved.” However, he said that market prices are not a reliable indicator of the risk level.

Tallbacken Capital Advisors’ CEO Michael Purves published a Monday research note. He stated that while there is some tension around the debt ceiling, the pricing structure of Treasury bills shows that three-month bills “presumably won’t have default risk” as opposed to one-month bills. But it doesn’t reflect the larger spikes that occurred in 2011 and 2015.

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