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With the U.S. national debt exceeding $33 trillion and a government shutdown looming, Wall Street is on the defensive.
The closures could sour sentiment and hurt an economy already facing high gas prices, auto worker strikes and rising inflation, and could even increase the likelihood of a recession. Some people think that.
Fitch sent the following questions to Congress: morning Call After a fight over the debt limit earlier this summer.rating company demoted united states sovereignty It changed the debt from AAA to AA+ in August, citing the country’s growing debt and partisan brinkmanship policies as the main reasons behind the decision.
But the government has fallen asleep.
what’s happening: Since then, the nation’s total debt has increased at an alarming pace, increasing by $1 trillion in the past three months alone.
political finger pointing Meanwhile, the government is at an impasse over the budget over the cause of accelerating debt growth.
Budget deficit — the difference between what the government spends and what the government receives — reached $1.5 trillion In the first 11 months of the fiscal year, it was up 61% year over year.
Recent interest rate increases have already made it much more expensive for governments to pay back what they borrow. And a government shutdown without a debt repayment plan would make the problem even worse.
“As we’ve seen recently with rising inflation and interest rates, the cost of debt can suddenly and rapidly increase,” said Michael Peterson, CEO of the Peter G. “It has the potential to increase rapidly.” “With more than $10 trillion in interest costs over the next 10 years, this compounding fiscal cycle will only continue to hurt our children and grandchildren,” he said.
Republicans say the Biden administration’s federal spending programs are too expensive, while Democrats say Republican-backed tax cuts are crushing revenue.
September 30th is the end of the fiscal year, and lawmakers have until October 1st to finalize a 2024 budget to avoid a government shutdown. But none of the 12 spending bills needed to fund the government have yet passed Congress, making it unlikely the plan will be passed by the deadline.
Gary Schlossberg and Jennifer Timmerman of the Wells Fargo Investment Institute say the U.S. economy is already struggling with inflation, rising interest rates, high budget deficits, a UAW strike, a resumption of student loan payments, and rising gas prices. He said there was a threat of a government shutdown amid pressure from the government. .
Each of these “will weigh on housing, consumer finance and government loan spending, increasing the risk of a recession into the end of the year,” they said.
Why it’s important: A government shutdown would halt most government activities and services and require all non-essential government employees to take unpaid leave. EY analysts estimate that there are approximately 800,000 non-emergency federal employees, each with an average salary of $95,000.
The extent of the damage will depend on how long the potential shutdown lasts.
EY Chief Economist Gregory Daco and his team estimate that each week of government shutdowns would cost the U.S. economy $6 billion and reduce GDP growth by 0.1 percentage point in the fourth quarter of 2023. I calculated it.
Daco said the government shutdown also leads to a lag in economic indicators, which “could cause headaches for economists and policymakers trying to assess the health of the economy.”
Shutdowns over the past 30 years have lasted anywhere from a few days to more than a month, but Schlossberg and Timmerman said the current shutdown will be among the few, given their “hardened positions in an increasingly polarized Congress.” I think it could last for weeks.
They said the incident “could be a new trigger that could lead to increased volatility and a prolonged decline in stocks, given the underlying vulnerabilities across the economy.” . It added that investors should prepare defensive portfolios “for an economy approaching an expected recession.”
According to my colleague Brian Mena, the Federal Reserve will lower its benchmark lending rate on Wednesday as it waits for more data to understand how its previous rate hikes are impacting the U.S. economy. It is expected that it will remain unchanged.
The central bank sets interest rates Highest price in 22 years In July.
At the end of its two-day policy meeting on Wednesday, the Fed is also expected to release a new set of economic forecasts that will likely reflect. strong economic growth And this year’s unemployment rate has fallen slightly compared to previous estimates.
Officials’ new economic forecasts will show at least the following: Another rate hike this year. There appears to be a consensus among Fed officials that interest rates will remain unchanged this month. It’s the right thing to do -But some policymakers say the Fed could raise rates again after September.
Investors will be looking for clues that the Fed is finished raising rates, but Fed Chairman Jerome Powell is likely to stress in his post-meeting press conference that inflation remains unacceptably high. If that happens, the next rate hike could happen after the November 1st meeting, but financial markets are currently predicting that the Fed may continue to pause rate hikes in November, according to the CME FedWatch tool.69 %.
Instacart began trading on Tuesday at $42 per share, pushing the grocery delivery company’s market valuation to just over $11 billion. My colleague Jordan Valinsky reports..
Instacart, which trades under the ticker CART, had priced its initial public offering at $30 per share.
Despite making a strong debut, Instacart’s The valuation is a significant drop from the company’s value of $39 billion in 2021. Boom due to pandemic.
Since then, the the value has plummeted As demand for the service begins to stabilize, some Instacart employees are beginning to feel the effects of a sharp drop in orders. Competition is also increasing from Amazon and Walmart, which are improving their grocery delivery options.