Germany Enters Technical Recession

Debt Ceiling Concerns Raised

With the world’s largest economy being just days away from the prospect of X-date, tensions on Capitol Hill are growing. As looked at earlier this week, X-date the date which denotes the date at which the US will have breached their debt ceiling and given outstanding obligations, would be in technical default. While President Joe Biden and House Speaker, Kevin McCarthy have held “productive” discussions given that no agreement has been reached, analysts are raising their expectations of X-date being realised. For example, Michael Feroli, JPMorgan’s chief US economist said that “we still think the most likely outcome is a deal signed into law before the X-date, though we see the odds of passing that date without an increase in the ceiling at around 25% and rising”. With such concerns rising, Fitch Ratings have warned that the US’ AAA rating is under threat due heightened uncertainty over a deal being reached.

Fed Minutes

With money markets currently pricing in around a 30% change of the Fed raising rates by a further 25bps, the release of the FOMC’s minutes has illuminated the split amongst policy makers. For example, various FOMC committee members evidently favour a June pause with the minutes stating that “several participants noted that if the economy evolved along the lines of their current outlooks, then further policy firming after this meeting may not be necessary”. Meanwhile, the minutes also indicated that “many participants focused on the need to retain optionality after this meeting” and thus their view on whether to raise rates or pause will be driven by recent data. As such, all eyes are on the Fed’s interest rate decision on 14 June and whether they will pause or raise their hiking cycle, where the base interest rate stands at 5.25%.