Investment bank JPMorgan, one of the biggest players on Wall Street, now estimates the probability of a US default at 25%, according to Markets Insider.

The warning issued on Wednesday came after Janet Yellen, the US Treasury secretary, again warned that Congress must reach an agreement on the US debt ceiling by early June so that Washington can avoid a disaster.

“We still think the most likely outcome is a deal signed by date X, although we see the possibility of exceeding that date without a cap increase of about 25% and rising,” said Michael Feroli, JPMorgan’s chief U.S. economist. .

It also notes that the US Treasury could avoid a technical “default” by making payments on its debt before meeting other obligations, but that would likely result in a downgrade of the US’s credit rating from triple A.

But at the same time, defaulting on interest on the US debt in the first place will lead to “much worse results”, he said.

Negotiations on avoiding a US default are reaching the last hundred meters

In addition, the rating agency Fitch announced on Wednesday that it has decided to put the top US AAA rating “under supervision” due to the risk of bankruptcy.

The decision “reflects political tensions that are preventing a resolution of an issue such as raising or suspending the debt ceiling while the deadline is fast approaching,” the agency explained.

Congress must raise the debt ceiling quickly to avoid a default that the U.S. Treasury says could happen in less than two weeks.

Like JPMorgan, Fitch “expects” a timely resolution of the situation, but its experts believe that “risks have increased that the debt ceiling will not be raised or suspended in time and that the government will begin to default.”

Unlike most developed countries, the US has limits on the level of public debt it can achieve. Currently, that limit is $31 trillion. Because the U.S. government has been spending more than it takes in for decades, this limit must be continually raised because it requires congressional approval.

American politicians play muscles with the presidential elections

In years when the White House, the U.S. state executive branch, and Congress, the federal legislature in Washington, are under different political controls, negotiations over raising the debt ceiling are often tough and marked by political battles, so the current situation is not new.

But US congressmen usually reach an agreement before the situation becomes too dangerous. Since the beginning of this year, Janet Yellen has repeatedly warned that the US risks declaring default if lawmakers in Washington do not reach an agreement.

President Joe Biden met again in the middle of this month with Republican representatives in Congress to try to reach a deal, but last Sunday the White House announced that the talks had taken a “backward step.”

Neither Republicans nor Biden’s Democrats seem willing to compromise in order not to appear weak to their constituents, given that next year’s presidential election, which will be held at the same time as congressional elections, is just over a year away.

In fact, former President Donald Trump, who is hoping for a rematch against Biden in November 2024, asked Republican congressmen earlier this month to declare a US default unless the Biden administration agreed to “huge budget cuts.”

Immediately after Trump’s comments, the IMF began sounding the alarm, warning that such a situation would have particularly serious consequences for the entire world economy, not just the American one.