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Friday, June 2, 2023

Inflation and no deal on debts. The US economy is in serious trouble

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In the US, the week ends with no agreement to raise debt levels. Earlier we learned the alarming data on inflation.

Negotiations to raise the US debt ceiling are entering a decisive phase, and time is running out. The dollar does not react to the news and seems to be ignoring this risk factor. On the other hand, inflation has entrenched at a high level, which increases the likelihood of further rate hikes in the US and contributes to the strengthening of the dollar.

American politicians are working hard to reach a compromise. The gap between the positions has clearly narrowed, but so far negotiations to raise the public debt ceiling have not led to a breakthrough. The US federal government’s cash balance fell below $50 billion.

Monday is a public holiday in the United States (Memorial Day), so no payments will be made on that day. On Thursday, the first of the month, there are about $100 billion in payouts, mostly for health insurance.

finance minister warns

Constant signals from Treasury Secretary Janet Yellen that there is a high risk of a shortage of money in early June due to the payment structure.

News reports are currently shaping a compromise that will lead to cost cuts over the next two years. The debt ceiling will then be raised or suspended accordingly for that period. In that case, another increase would not be required until next November’s presidential election.

New procedural rules in the US state that the House of Representatives has 72 hours to consider a new bill before it is put to a vote. There is really little time.

US inflation remains a problem

The latest macro data show that US inflation and spending have accelerated. The dollar has risen in price.

This highlights ongoing price pressures and demand, which could cause Federal Reserve policymakers to lean towards further tightening of monetary policy. The dollar is strengthening. EUR/USD falls to 1.0730.

The Personal Consumption Expenditure Index, one of the Fed’s preferred indicators of inflation, rose 0.4% in April, the Commerce Department said Friday. A year ago, this figure increased by 4.4 percent.

Excluding food and energy, the so-called. the main PCE index rose by 0.4%. compared to the previous month and by 4.7 percent. compared to April 2022. This factor will increase pressure for further Fed rate hikes.

Source: Brokers TMS // Lukasz Zembik

Source: Wprost

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