Stagflation is now the concern for the US: MacroSlate Weekly
The U.S. economy grew at an annualized pace of 1.1% in the first quarter of 2023, a slower than expected rate of 1.9%. Stagflation is now a concern for the United States. This GDP was significantly lower than the previous two quarters, at 2.6% and 3.2% respectively.
Next week’s FOMC meeting on May 3rd is expected to raise the Federal Funds Rate to 5.00% and raise interest rates by another 25bps.
debt ceiling drama
What is the loan limit? According to the U.S. Treasury Department, “Debt limits allow the U.S. government to borrow to meet existing legal obligations, such as Social Security and Medicare benefits, military salaries, and interest on the National Pension. It is the sum of the amounts: debts, tax refunds, and other payments.”
according to 1960 data Backed by Lynn AldenCongress raised the debt ceiling 78 times, while Democrats and Republicans raised it 29 and 49 times, respectively.
You may have heard the news that the US is approaching the debt ceiling, which is causing market uncertainty. The US debt ceiling is being raised, kicking the can. This chicken game will probably last him until the 11th hour. We have previously emphasized that the Treasury Department’s general account has been depleted and heading towards zero, which has disrupted the market.
But neither Democrats nor Republicans are far from agreeing. Democrats are calling for an unconditional increase in the debt ceiling. Republicans are calling for spending cuts.
The longer this goes on, the more pressure will be put on financial markets. This can best be seen in the 1-month and 3-month US Treasury bill spreads. The spread between the two yields should be zero. As you can see, the demand for his 1-month T-bill in the US maturing before the US Treasury runs out of cash is 3.759%. At the same time, unless Congress raises the debt ceiling, the 3-month T-bill faces potential default, yielding 5.154%. Investors are worried about possible defaults and expect the Treasury Department to be unable to pay its debts as soon as June, but believe the cap will be extended.
US Treasuries are the foundation of the entire financial system, so a permanent default would disrupt the entire system. However, a small temporary default could impact US credit. This is evidenced by his 5-year CDS spread in the US, which is at his highest level since 2009.
First Republic Bank
Why is the local bank crisis over when interest rates are still rising? First Republic Bank’s stock has fallen nearly 95% in the last six months. With the federal funds rate approaching 5%, deposit flights are a serious problem for banks. First Republic Bank reports huge deposit flight.
The crisis could deepen if the FDIC and private organizations fail to find a solution. According to Macro Investment, if the Fed held to maturity assets were sold, the realized losses on those assets would wipe out the value of its stock. The Fed and Treasury will likely have to take a similar bailout to Credit Suisse.
BOE not responsible for inflation
UK public sector borrowing increased year on year to total £21.5bn, equivalent to 5.5% of GDP, with a deficit of £21.53bn. In addition, interest costs rose by more than 47% from last year to over £106.6bn.
Frankly, it was a week of forgetting the policy makers in charge who needed to go back to school and understand the basics of economics. Deputy Governor Ben Broadbent flatly denied that money printing during covid was a result of this uncontrollable inflation. He blamed the cost of energy imports.
Chief economist Huw Pill has taken a toll on incompetent policymakers this week, saying that people in the UK should “admit that things are getting worse and stop trying to maintain real purchasing power.” I have to,” he said. He accuses people of wanting higher wages and causing inflation. He also expects inflation to drop to 2% over the next two years. He can now join the Inflation Is Temporary team alongside Jerome Powell.
The Bank of Japan met again on Friday, not surprisingly, pledging a stimulus-first approach to keep the 10-year yield curve under control. As a result, the yen and yields fell significantly.