Homepage / Investment / Debt ceiling fears are casting a shadow over Fed plans
Amazon says this Prime Day was its biggest shopping event ever Kudlow says President Trump is 'so dissatisfied' with China trade talks that he is keeping the pressure on As stocks regain their footing, an ominous warning looms Goldman Sachs downgrades Clorox to sell, says valuation is 'unsustainably high' How Satya Nadella has spurred a tripling of Microsoft's stock price in just over four years Kudlow says economic growth could top 4% for 'a quarter or two,' more tax cuts could be coming The one chart that explains Netflix’s stunning comeback US housing starts plunge 12% in June to a nine-month low Aerospace titans Boeing and Airbus top $110 billion in orders at Farnborough Target uses Prime Day to its advantage, logging its 'biggest online shopping day' so far this year Billionaire Marc Lasry sees bitcoin reaching up to $40,000 as it becomes more mainstream and easier to trade These are the 10 US airports where you're most likely to be hacked Amazon shares slightly higher as investors await Prime Day results Wreck of Russian warship found, believed to hold gold worth $130 billion A bullish ‘phenomenon’ in bond market is weeks away from fading, top credit strategist says Stocks making the biggest moves premarket: MS, GOOGL, TXN, UAL, NFLX & more Twitter shares up 50% since late April means most upside priced in, analyst says in downgrade EU fines Google $5 billion over Android antitrust abuse Mortgage applications fall 2.5% as buyers struggle to find affordable homes America may not have the tools to counter the next financial crisis, warn Bernanke, Geithner and Paulson Investors are getting spooked as the risk of a no-deal Brexit rises EU expected to fine Google $5 billion over Android antitrust abuse Ex-FBI chief James Comey urges Americans to vote for Democrats in midterm elections Elon Musk apologizes to British cave diver following baseless 'pedo guy' claim Disney, Comcast and Fox: All you need to know about one of the biggest media battles ever Xiaomi shares notch new high after Hong Kong, mainland China stock exchanges reach agreement The trade war is complicating China's efforts to fix its economy European markets set for a strong open amid earnings; Google in focus Hedge fund billionaire Einhorn places sixth in major poker tournament The biggest spender of political ads on Facebook? President Trump Asian stocks poised to gain after Fed's Powell gives upbeat comments; dollar firmer Stocks are setting up to break to new highs Not all FAANG stocks are created equal EU ruling may be too little, too late to stop Google's mobile dominance Cramer explains how Netflix's stock managed to taper its drop after disappointing on earnings Airbnb condemns New York City's 'bellhop politics,' threatens legal retaliation Amazon sellers say they were unfairly suspended right before Prime Day, and now have two bad choices Investor explains why 'duller' tech stocks can have better returns than 'high-flying' tech names Elon Musk is 'thin-skinned and short-tempered,' says tech VC Texas Instruments CEO Brian Crutcher resigns for violating code of conduct Google Cloud Platform fixes issues that took down Spotify, Snapchat and other popular sites Uber exec: We want to become the 'one stop' transportation app 'What a dumb hearing,' says Democrat as Congress grills tech companies on conservative bias Amazon shares rebound, report says Prime Day sales jumped 89 percent in first 12 hours of the event How to put your medical history on your iPhone in less than 5 minutes Investment chief: Watch these two big events in 2018 Even with Netflix slowing, the market rally is likely not over Cramer: Netflix subscriber weakness debunks the 'sky's the limit' theory on the stock Netflix is looking at watch time as a new area of growth, but the competition is stiff Why Nobel laureate Richard Thaler follows Warren Buffett's advice to avoid bitcoin Rolls-Royce is developing tiny 'cockroach' robots to crawl in and fix airplane engines After Netflix plunge, Wall Street analysts forecast just tame returns ahead for the once high-flying FANG group Roku shares rise after analyst raises streaming video company's price target due to customer growth China is investing 9 times more into Europe than into North America, report reveals Amazon says US Prime Day sales 'so far bigger than ever' as glitch is resolved Netflix is on pace for its worst day in two years US lumber producers see huge opportunity, rush to expand San Francisco to consider tax on companies to help homeless Homebuilder sentiment, still high, stalls as tariffs, labor and land drive up costs Powell backs more rate hikes as economy growing 'considerably stronger' Netflix history is filled with big stock declines – like today – followed by bigger rebounds Intel shares get downgraded by Evercore ISI due to rising competition from Nvidia, AMD Petco aims to reinvent the pet store with something you can't buy online Genetic testing is coming of age, but for consumers it's buyer beware Tech 'FAANG' was the most-crowded trade in the world heading into the Netflix implosion, survey shows Netflix weak subscriber growth may indicate a 'maturity wall' that could whack the stock even more: Analyst This chart may be predicting the bull market's demise Wall Street says Netflix's stock plunge is a ‘compelling’ buying opportunity because the streaming giant ‘never misses twice’ Tesla sinks after Musk tweets, again Boeing announces new division devoted to flying taxis Stocks making the biggest move premarket: NFLX, UNH, GS, AMZN, WMT & more Deutsche Bank downgrades Netflix, but says big subscriber miss is not 'thesis changing' IBM is experimenting with a cryptocurrency that’s pegged to the US dollar North Korea and Zimbabwe: A friendship explained Virgin Galactic spinoff Orbit to launch rockets from the UK with space deal Artificial intelligence will create more jobs than it destroys? That’s what PwC says ‘Treasonous’ Trump and ‘Putin’s poodle:' Scathing headlines follow the Trump-Putin summit China’s fintech companies offer ‘enormous’ opportunity, investment manager says Trump's performance at summit with Putin was 'unprecedented,' experts say Walmart and Microsoft link up on cloud technology as they both battle Amazon European stocks seen mixed amid earnings; Fed’s Powell to address Congress How I knew I should quit my day job and run my start-up full-time: Viral website founder China's stocks have been trounced, but the trade war may ultimately be good news for those shares Billionaire tech investor Peter Thiel bets on crypto start-up Block.one Asian shares subdued open after mixed close on Wall Street; energy stocks under pressure Amazon cloud hits snags after Amazon Prime Day downtime Netflix isn't doomed by one quarter unless people start questioning the long-term investor thesis Tech stocks set to sink on Tuesday after rough evening for ‘FANG’ Netflix plummets after missing big on subscriber growth This wristband lets humans control machines with their minds The U.S. has a rocky history convincing Russia to extradite computer criminals Amazon suffers glitches at the start of Prime Day Jeff Bezos is now the richest man in modern history 'The United States has been foolish': Read Trump and Putin's full exchange Goldman Sachs recommends these 5 highly profitable companies — including Nvidia — to combat rising inflation Goldman Sachs releases 'tactical' stock picks for this earnings season Three red flags for Netflix ahead of its earnings report The bond market may be raising recession fears, but don't expect one anytime soon Cramer: Banks are 'making fortunes' but are still as hated as they were during the financial crisis Putin told Trump at summit: Russia never meddled in US election


Debt ceiling fears are casting a shadow over Fed plans

The Federal Reserve’s plan to start unwinding quantitative easing as early as September could be derailed if Congress fails to tackle the looming deadlock over the US debt ceiling, analysts warn.

Republican failures to win legislative victories — embodied by the collapse of healthcare reforms — last week injected an early bout of nerves into financial markets as investors confronted the possibility of a disorderly stand-off over the US’s public debt limit. In a worse-case scenario, this could lead to a government shutdown as well as market turmoil.

While yields on three-month Treasury bills subsided somewhat at the end of last week, jitters have come sooner than during the debt ceiling countdowns of 2011 and 2013, according to Mark Cabana, a strategist at Bank of America Merrill Lynch. This is striking given that Republicans have control of both wings of Congress and the White House, which ought to put them in a stronger position to reach a deal.

Receive 4 weeks of unlimited digital access to the Financial Times for just $1.

Mark Zandi, chief economist at Moody’s Analytics, said it was reasonable for investors to be getting a little nervous. “This is an administration that has shown it can’t get anything done. Absolutely nothing,” he said.

Congress sets a limit on the federal government’s debt in law, which currently stands at $19.8tn. Once the limit bites, the Treasury can no longer borrow and, if it were to exhaust other ways of making payments, it would eventually have to miss, delay or reduce payments.

The Treasury bumped up against the debt limit in March, so it has since then been using so-called “extraordinary measures” to buy Congress more time to act on the debt limit. The Congressional Budget Office and the Bipartisan Policy Center both estimate that those measures will finally expire in early to mid-October.

The risk of a stand-off has implications for monetary policy, as well as markets. The Fed signalled in its latest meeting that it could start paring back its purchases of securities including government debt as soon as its September 19-20 meeting.

Investors said the Fed might choose to wait before starting to curtail purchases of government bonds if the Treasury is grappling with serious bond market turbulence. The central bank showed in early and mid-2016 it is reluctant to make important policy moves when financial markets are going haywire.

Steven Mnuchin, the Treasury secretary, has repeatedly urged Congress to lift the ceiling before its recess, but lawmakers have ignored his pleas, with the House adjourning for its summer break with no resolution in sight.

“It does put them in a little bit of an awkward spot,” Mr Cabana said. “The Fed may be thinking we don’t want to have our monetary policy decisions unduly influenced by political developments, especially given every other debt limit issue has been resolved.”

There are also fears the debt ceiling discussions could get intermingled with other issues in Congress, in particular discussions over the 2018 budget and the potential for a government shutdown after the expiry of the fiscal year on September 30.

Rightwing Republicans, including the Freedom Caucus, have said they will only sign up to legislation addressing the debt ceiling if they get tough conditions on spending attached. They used this gambit against Barack Obama. It is striking now to see them using it against a president and Treasury secretary from their own party.

However, any attempt by conservative Republicans to advance their broader public spending agenda in a debt ceiling bill would likely be immediately rebuffed by Democrats.

On top of this, the Trump administration has been sending confused signals over its debt ceiling strategy.

Mr Mnuchin has been calling for a “clean” bill increasing the debt limit, without any conditions attached. However, Mick Mulvaney, the president’s budget chief, has publicly supported the idea of attaching riders to the debt-ceiling increase, creating an impression of internal conflict in the Trump administration.

Both Mr Trump and Mr Mnuchin have said it might be possible to have a “good” government shutdown — heightening the risk of brinkmanship.

Shai Akabas of the Bipartisan Policy Center said most investors have a high level of confidence that the debt limit will get worked out in time. Still, even if just “one iota of doubt” creeps in it will start to affect how they think about the relevant government securities, he said.

More from the Financial Times:
US considers plan to cap nicotine levels in cigarettes
Isolationism is killing the American dream
Supreme Court gives Trump partial travel ban victory

Source: Investment Cnbc
Debt ceiling fears are casting a shadow over Fed plans

Comments are closed.