The economy averted a crisis over the weekend when President Joe Biden signed a bill that would extend the country’s borrowing capacity for two years.
With relatively little economic news this week ahead of the important Federal Reserve meeting in eight days, this week’s numbers are expected to be less dramatic.
On Sunday, in another move that could help fight inflation and play a role in the Fed’s thinking, influential member Saudi Arabia announced a $1 million production cut while OPEC oil producers agreed to maintain production cuts. One barrel per day for the month of July.
This should help keep oil prices in check, which are currently hovering around $70-$75 per barrel. Crude rose after the announcement, but traded Monday morning near $73 a barrel. International benchmark Brent crude is trading at around $77, down from $120 a year ago.
Political comics about the economy
All eyes are now on the central bank’s June meeting, which will take place over two days starting June 13. At the Fed’s meeting in May, when interest rates were raised by a quarter of a percentage point, there were clear hints that a pause could come as officials assess the effects of a year of tight monetary policy. Uncertainty over the aftermath of the March banking crisis and resolution of debt disputes in Congress swirled around the decision.
Well, that’s another concern. Recent inflation data points to subdued inflation, especially in the service sector of the economy. And Friday’s blockbuster employment number, 339,000 in May, slightly exceeded expectations and is attracting attention as a cause for concern at the moment. While many experts see weaknesses in underlying details, there is little doubt that the labor market has shown resilience in the face of tight bank credit and borrowing costs. no.
“Overall, the May jobs report maintains the possibility of a Fed pause at next June’s FOMC meeting,” EY senior economist Lydia Boussall said after the report was released. . “But the Fed’s hawkish comments and over-reliance on data mean the door is still open for a possible rate hike.”
“If the upcoming CPI (Consumer Price Index) report (to be released on the first day of the FOMC) turns out better than expected, a few policy makers in favor of a ‘hawkish moratorium’ could shy away from further interest rates. “Hike,” she added, likely to join the supporters.
With the debt ceiling raised, the market will also face a potential tsunami of new Treasury borrowing. That could create more volatility in bond markets already facing Fed rate hikes and recession fears in the second half of this year.
“The desk estimate is that the Treasury will try to rebuild the TGA (primary account) to a standing balance of about $600 billion or $700 billion,” said Brandon Brown, vice president of the short-term trading desk at Goldman Sachs. It is,” he said in advance. Regarding Settlement of Debt Transactions. “But that’s in addition to regular issuance used for regular government spending. Market expectations are that the actual amount of money issuance going forward is actually just over $1 trillion, and probably the largest. We think it will be $1.2 trillion.”
Brown said he expects money market accounts to step in to make up for some of the excess issuance and that the issuance will be processed smoothly.
“There will be some volatility, but we’re not worried,” said Joan Feldbaum-Vidla, managing director of Kroll rating firm Sovereigns Group.
