© Reuters The Fed expects to raise interest rates despite uncertainty about the debt ceiling
AI stocks rose yesterday with NVIDIA earning $184 billion in one day after issuing its AI chip. The US stock market seems to be navigating choppy waters relatively easier given the significant policy tightening by the US Federal Reserve and uncertainty over the debt ceiling. The latest hike may signal another interest rate hike next month.
On the other hand, the US lawmakers did not reach an agreement on raising the debt ceiling due to the political turmoil ahead of the presidential elections. Democrats are under pressure to accept a deal they can promote in their campaigns. And the Republicans are not ready to give them satisfaction, risking the lives of millions of people.
What can we expect from the FOMC meeting next month? As the US government approaches a deadline to raise the debt ceiling this week. The futures markets will fully complete another quarter-point rate hike to the 5.25-5.50% range by the end of July. The market expects the next rate hike to be the last in this cycle. The Federal Open Market Committee will meet on June 15-16. By then we will have a clear picture of the debt ceiling as well.
If by chance the US government defaults on its debts and US markets begin to collapse. We are likely to see the Fed pause or even cut interest rates to allow easy borrowing to revive the market.
US Treasury remains under pressure in both scenarios Market uncertainty didn’t see much relief as 1-month yields remained above 6% early Friday. Even if the debt ceiling is raised before June 1st. The Treasury will have to quickly issue up to $1 trillion in new debt securities to meet short-term financing needs.
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2023-05-27 10:52:00
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