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Deal Reached to Raise Federal Government’s Debt Ceiling
After months of stalemate, U.S. President Joe Biden and top congressional Republican Kevin McCarthy have reached a tentative deal to raise the federal government’s $31.4 trillion debt ceiling, according to two sources familiar with the negotiations. However, the deal still faces a challenging path to pass through Congress before the United States runs out of money to pay its debts in early June.
Financial Experts Share Their Views
Thierry Wizman, Global FX and Interest Rates Strategist, Macquarie Group, New York
Thierry Wizman believes there will be relief in fixed income markets, particularly in the credit markets and Treasury bill market where there were the most distortions due to uncertainty. However, he notes that the deal does not solve the issue of increased yields across the whole Treasury curve, which is expected to continue until the U.S. Treasury replenishes its cash. Wizman thinks that stocks may perform well since the deal removes an overhang from the market. Regarding the dollar, he expects a slight strengthening as the deal weakens the argument for de-dollarization but does not anticipate a significant increase since the dollar has already strengthened in recent weeks.
Amo Sahota, Director, KlarityFX, San Francisco
Amo Sahota believes that the deal is good news for the market, particularly for equities and the tech sector. He suggests that the market may seize the opportunity to price in more tightening in June if the economy continues to perform well, and spending remains strong. Sahota expects the dollar to remain strong, given the deal’s focus on cuts, which was what the Republicans were pushing for.
Long-Term Implications and Uncertainties
While the current deal to raise the federal government’s debt ceiling is likely to provide some relief to the markets, it remains uncertain how long the deal will last and what the long-term implications may be. Financial experts agree that it will depend on the details of the deal and how it is received by Congress. Nevertheless, many believe that the deal will have positive short-term impacts on the economy, and it will be interesting to see how the markets react when they reopen.
