The chairman and chief executive officer of the Bank of America (BofA) recently warned the financial sector to brace itself against not only the looming possibility of an economic recession but a debt default in the United States as well.

Over the past several months, Moynihan and the BofA have raised the alarm over a recession that could adversely impact the US economy as well as earnings for individuals and corporations alike. Moynihan added that expressing hope that such a scenario doesn’t come to pass is not the prudent course of action and that companies needed concrete measures to stave off the worst.

In an interview on Monday, February 6th, the head of the BofA expressed his own hopes that the government would not slide into default on its debts, but it remains a possibility – and one that can seriously shake up the national economy. He added that a recession would not only affect the United States but the rest of the world as well.

Moynihan’s warning comes in the wake of the United States hitting its borrowing limit of $31.4 trillion back in January, an event that drove the Treasury Department to impose several extraordinary measures to keep the country from defaulting on its debts. These will remain in place till June, a move which gives Congress just over four months to raise the debt ceiling unless they want to deal with a general financial meltdown as well a catastrophic plunge in the stock market.

However, current discussions regarding the government budget appear to have hit a dead end as both sides of Congress continue to squabble over where to impose spending cuts in the event that the debt ceiling should be raised.

Extraordinary Circumstances Call for Extraordinary Measures

Over the past few years, the United States needed to borrow more in order to cope with the spread of COVID-19 throughout the country and other crises. However, Moynihan vetoed any suggestions that the government needs to do away entirely with the country’s debt ceiling. Instead, he opined that there should be a meaningful conversation as to how the country ought to live within its means.

Currently, BofA still expects a mild recession to hit the American economy in light of still-high inflation as well as high-interest rates. Indeed, the US Federal Reserve has raised interest rates by 450 basis points as of press time to stop inflation in its tracks, but this has the adverse effect of dragging on corporate earnings, leading to an economic downturn.