U.S. debt ceiling deadlock unresolved, Powell says bank stress may affect policy rates

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U.S. debt ceiling deadlock unresolved, Powell says bank stress may affect policy rates

As June approaches, the market's attention remains focused on whether the two parties can reach an agreement on the US debt ceiling issue as negotiations are currently on hold. Various markets are showing narrow fluctuations, with the S&P 500 index falling slightly by 0.14% on Friday. As of the deadline, gold is priced at $1,979, Bitcoin at $26,783, and Ethereum at $1,806.

Stalemate Unresolved in U.S. Debt Ceiling Issue

U.S. Treasury Secretary Yellen previously warned that the Treasury's cash is expected to run out in early June, and if Congress cannot reach a consensus to raise the federal debt ceiling, it could trigger a "constitutional crisis." However, on Friday, Republican negotiators abruptly left the White House, stating that the White House was unreasonable, negotiations were suspended, and the situation once again fell into a stalemate.

Bridgewater Associates founder Ray Dalio also shared his views on the debt ceiling, stating that the most likely scenario is:

Neither side will allow default or, even if they do, it won't last long, and they won't deal with big issues in a substantive way. Instead, they will adjust in ways that look better than they are, but are inconsequential, for example: they will promise to cut deficits in the future, but when the time comes, they won't.

Powell Says Banking Stress Could Affect Policy Rates

According to a report by CNBC, Federal Reserve Chairman Powell stated in a speech in Washington, D.C. last Friday that the Fed's measures to address issues in medium-sized banks prevented the worst-case scenario, but stresses in the banking sector could still impact the overall economy. This could mean that our policy rates may not need to be as high as previously targeted to control inflation.

However, he also added that failure to lower inflation would not only prolong pain but ultimately increase the social costs of restoring price stability, causing greater harm to households and businesses. The Fed's goal is to avoid such a situation by maintaining a steadfast approach.

According to the CME Group's FedWatch tool, the majority of investors, 82.6%, expect the Fed to keep rates unchanged at 5-5.25% at the next rate decision meeting on June 14.

This week's important U.S. data will focus on May 25, including initial jobless claims, first-quarter GDP, and the PCE personal consumption expenditure price index.