“Every family should be concerned” about the debt ceiling, warns the consumer watchdog

New York (CNN) Leaders in Washington are running out of time to avoid an unprecedented default on US debt. The federal government’s top consumer watchdog is warning of dire consequences for American families.

“It’s a big concern. Every family should be concerned,” Rohit Chopra, director of the Consumer Financial Protection Bureau, told CNN in an interview Thursday.

If Congress fails to address the debt ceiling, the federal government could run out of money as soon as June 1[ads1], according to Treasury Secretary Janet Yellen. The nonpartisan Congressional Budget Office said Friday that there is a “significant risk” that the federal government will no longer be able to pay all of its obligations during the first two weeks of June.

Chopra said a default would cause the cost of borrowing — including credit card, car loan and mortgage interest — to rise because America’s debt serves as a critical benchmark for various forms of credit. US Treasuries have long been seen as risk-free assets, which keeps interest rates very low.

“If global investors don’t think it’s completely safe, we’ll all end up paying for it,” Chopra said.

When asked to react to former President Donald Trump dismissing a standard as perhaps just a “week or bad day” to CNN’s Kaitlan Collins, Chopra declined to comment directly on political candidates. But in his reply, Chopra made it clear that he has the exact opposite view.

“A lot of things that we assume are part of our economic fabric will be torn away,” Chopra told CNN.

He added that the CFPB, a brainchild of Massachusetts Democratic Sen. Elizabeth Warren that was created by the 2010 Dodd-Frank financial reform law, is “looking very hard” at the impact a standard would have on households.

“You’ll Panic”

Some economists have warned of mass redundancies if the government defaults. The White House has estimated that more than 8 million jobs will be wiped out if there is a prolonged default. Moody’s Analytics estimates that states, including Florida, Ohio, Pennsylvania and Texas, will lose hundreds of thousands of jobs each if there is a prolonged breach of the borrowing limit.

“From our own knowledge and oversight of the banking system, we know that everyone is extremely concerned. Corporate America, high street, everything could be affected,” Chopra said. “The consequences are really quite acute, often for those who can least withstand the economic storms.”

JPMorgan CEO Jamie Dimon echoed those concerns, pointing to the risk of market chaos.

“The closer you get to it, you want to panic,” Dimon told Bloomberg on Thursday. “The markets will become volatile, maybe the stock market will go down, the financial markets will have their own problems … This is not good.”

No clear path

Treasury Secretary Janet Yellen has called CEOs and business leaders to discuss the consequences of brinkmanship over the debt ceiling, a person familiar with the matter told CNN earlier this week.

The debt ceiling will very likely be a focus next week when Yellen is scheduled to meet leading bank chiefs in Washington at a trade association meeting.

President Joe Biden briefly commented on the debt ceiling negotiations when he arrived at Joint Base Andrews on Saturday, saying talks are “moving forward” but it’s still “hard to tell.”

“We will know more in the next few days,” he said.

“I think they’re moving forward, it’s hard to say. We haven’t reached the tipping point yet, but there’s a real discussion … but we’re not there yet,” Biden said.

Biden doesn’t think invoking the 14th Amendment “would solve all our problems,” Deputy Prime Minister Wally Adeyemo said on CNN’s “State of the Union” Sunday.

“The only thing that can solve our problems now is for Congress to raise the debt limit which by the way they have done 78 times,” Adeyemo said.

While there is still no clear path forward to avoid a default, observers remain cautiously optimistic that Congress will eventually reach a deal.

Neil Bradley, head of policy at the US Chamber of Commerce, is encouraged that talks are underway and hopeful that a bipartisan deal will emerge soon.

“We never expected a deal this week, but we wanted to see real, ongoing discussions, and that’s what’s happening,” Bradley told CNN.

“A Real Threat”

Nevertheless, as the June 1 deadline approaches, the risk of a genuine crisis increases.

Moody’s Analytics on Wednesday increased the probability of a breach of the debt ceiling to 10%, up from 5% previously.

“What once seemed inconceivable now seems a real threat,” Moody’s Analytics chief economist Mark Zandi wrote in a report.

A breach is not as serious as a default, which would only occur if the Treasury failed to pay the debt on time. A breach, on the other hand, would occur if the federal government fails to make a payment to a creditor on time, whether it’s a Social Security recipient or the utility bill for a government building.

Financial markets have begun to price in a small – but growing – chance of a catastrophic default.

The implied probability of a U.S. sovereign default in the next 12 months has roughly doubled since the end of March to 4.3%, according to modeling by research provider MSCI shared with CNN that is based on the cost of insuring U.S. debt in the market for credit default swaps .

CNN’s Ramishah Maruf and Betsy Klein contributed to this report.

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