“President Biden and Kevin McCarthy Reach Agreement on US Debt Ceiling, European Markets React”

It’s done, at least in outline, but the announcement is far from being celebrated with great fanfare in the United States. This weekend, President Joe Biden and his Republican counterpart in the House of Representatives Kevin McCarthy reached an agreement in principle on raising the federal debt ceiling.

Wall Street is closed on Monday for Memorial Day. The European financial markets will therefore be the first to react, after Asia, of course, where the major indices are up by around 1%. Half an hour before the first exchanges, the futures contracts suggest a slightly higher opening of the Cac 40.

« We have reached an agreement in principleSpeaker of the House of Representatives Kevin McCarthy said on Capitol Hill on Saturday. We still have a lot of work to do, but I think this deal is worthy of the American people. It would include, in exchange for a suspension of the cap until 2025, spending cuts but not new taxes or new government programs. The funds not used within the framework of the Covid will be reinstated, for an amount of nearly 30 billion dollars. Joe Biden, for his part, called the agreement ” important step forward that cuts spending while protecting essential programs for workers and growing the economy for all (…) It protects my top legislative priorities and achievements and those of Congressional Democrats (…) This is about ‘a compromise, which means not everyone gets what they want ».

Back to monetary policy

All is not yet settled. The text could be validated on Monday to be presented to Congress on Wednesday. It remains to have it adopted, therefore to convince the Democrats as well as by the voting Republicans. The deadline before a payment default by the country, that of June 1, was moved to June 5 on Friday evening by Treasury Secretary Janet Yellen.

On this Pentecost holiday, no meeting is on the agenda in France, especially since London, in particular, remains closed like Wall Street. On the other side of the Atlantic, the major events of the week are constituted, on Wednesday, by the publication of the Beige Book of the Fed, a preparatory document for the next monetary policy meeting of the central bank on June 13 and 14, and on Friday by the May employment figures.

After the agreement in principle found on the debt ceiling, the question of the monetary policy of the major central banks will very quickly come back to the fore given the sticky inflation in the United States and in Europe. In April, the PCE core index, the Federal Reserve’s preferred measure of inflation, rose 0.4% on a month, 0.1 points above expectations, and 4.7% on a year, marking a reacceleration compared to 4.6% in March.