U.S. debt limit talks to resume on May 22
Negotiations on the debt limit will resume in Washington between President Joe Biden and House Speaker Kevin McCarthy as early as today, according to Bloomberg. The whole stock market is following the current news on this topic. The consequences of a default in the U.S. for the entire market, shares of major companies, as well as indices (S&P 500 and others) can be unpredictable.
Yesterday, President Biden, returning from the G7 summit in Japan, had a phone conversation with the House Speaker. According to the U.S. President, the conversation went well, but there is limited time to prevent a U.S. default.
Prior to that, McCarthy emphasized that both sides have yet to reach an agreement, and the default could occur as early as June 1. Time is crucial, he said, although he was more hopeful of reaching a deal after discussing the disagreement with Biden.
As a result, there could be increased volatility in the U.S. market this week, while Asian stock indices are up and European indices are down. Furthermore, investors are hopeful that the Fed will pause its interest rate hikes due to the default risk.
On Sunday, Treasury Secretary Janet Yellen stated that the chances of the U.S. being able to pay all its bills by mid-June are quite low.
Republicans have reduced their demands for a budget spending cap from 10 to 6 years, although they still advocate for a significant increase in defense spending next year, which would result in further cuts to social services. Currently, defense accounts for approximately half of all federal discretionary spending.
Earlier, we reported that Biden, McCarthy hope to reach a deal on U.S. debt ceiling.
Fed Chair Powell to testify at US Senate June 22
Federal Reserve Chair Jerome Powell will testify at the U.S. Senate Banking Committee on June 22 at 10 am Eastern time, panel chief Sherrod Brown said on Friday.
The testimony marks the second iteration of the Fed chair’s twice-yearly reports to Congress on the state of U.S. monetary policy, and will come a week after the Fed’s upcoming interest-rate-setting meeting at which it is expected to leave borrowing costs unchanged despite still-high inflation.
S&P spares France from rating downgrade
Ratings agency S&P spared France on Friday the embarrassment of downgrading the country’s sovereign debt, but remained cautious about the outlook on account of the strained public accounts.
S&P left the country’s AA rating untouched after a regular review and said that the outlook remained negative due to “downside risks to our forecast for France’s public finances amid its already elevated general government debt”.
A downgrade would have been the second in six weeks after rival agency Fitch cut its rating at the end of April to AA- over concerns about potential political paralysis and social unrest.
Finance Minister Bruno Le Maire told weekend newspaper Le Journal du Dimanche that S&P’s decision to keep its AA rating was a “positive signal” and that the government’s public finance strategy was credible.
President Emmanuel Macron’s government is under pressure to prove that the government can stick to its deficit and debt reduction plans in the face of stubbornly high public spending and a rising cost of interest payments.
ECB’s Visco says falling energy prices should help tame inflation
The rapid decline in energy costs should help to tame inflation in Europe, Bank of Italy governor Ignazio Visco said on Saturday, urging companies not to seek to boost their margins by leaving prices higher for longer.
Visco, a member of the European Central Bank’s governing council, said the key issue was what happened to inflation now that energy prices had retreated from peaks hit after last year’s Russian invasion of Ukraine.
“I expect that at this point there will also be a cooling in the increase in core inflation, as we call it, which should reflect this reduction in the cost of energy,” Visco told the International Economy Festival in Turin.
“If this happens, (ECB) monetary policy is certainly the correct one at the moment even if I would perhaps have pressed for a more gradual approach,” he added.
Euro zone inflation eased more than expected in May fuelling a debate about the need for further ECB rate hikes beyond an increase expected later this month.
Inflation in the 20 nations sharing the euro eased to 6.1% in May from 7.0% in April, below expectations for 6.3% in a Reuters poll of economists.
Core inflation, which excludes volatile food and fuel prices and which has played an increasing role in the ECB’s policy deliberations, fell to 5.3%.
Visco warned against a wage-price spiral, saying salary rises should come against a backdrop of a growing economy rather than chasing inflation.
He also said companies had a role to play in ensuring that inflation was brought under control so that the ECB did not keep having to push up the cost of borrowing.
“It is not in the interest of companies themselves … to fail to reflect the lower cost of energy in their prices because then the cost of financing would rise,” he added.
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