![]() Households and businesses were flush with cash as the Fed kicked off rate hikes last year, which gave them a solid cushion to withstand losses as higher borrowing costs took hold. Unemployment stands at a fraction of where it was in 2011. With that said, the economy is much more resilient than it was following the global financial crisis. losing its top-tier credit rating in speeches and meetings with lawmakers. Yellen and other Biden administration officials have raised the specter of the U.S. Richard Bernstein, the former longtime chief investment strategist at Merrill Lynch who now leads an eponymous investment firm, said he now believes the possibility of a downgrade is north of 50 percent. Market volatility surged and major indices that track the stock market’s performance didn’t recover until the following year.Įven if Congress sends a debt limit bill to Biden’s desk before June 1, a downgrade - which would drive up credits costs for both governments and consumers - remains a threat. sovereign debt, which further pushed down equity markets. ![]() 5, S&P announced a historic decision to downgrade U.S. Two days after Obama signed the debt ceiling bill, the stock market reported its worst losses since the financial crisis as traders absorbed how the agreement - which forced major spending cuts - would hit an economy that was still stuck in the mud. 2 “X-date” - and continued falling until President Barack Obama and Republicans announced a deal on July 31. In 2011, stocks started cratering in late July - about 10 days before the Aug. “It was almost paradoxical, but the equity market, the S&P 500, fell after the debt ceiling passed” in 2011, said Reynolds. That’s what happened in 2011 after President Barack Obama and Republicans announced a deal only two days before Treasury’s “X-date.” ![]() While McCarthy’s debt ceiling bill included energy-permitting reforms and other changes that would likely cheer markets, it also includes major spending cuts that could spook traders if the economy takes a turn for the worse. The possibility of an economic downshift - with no promise of relief in the form of rate cuts - will bear on how the market receives whatever arrangement Biden and McCarthy make on the debt limit. But with the federal government just weeks away from tanking Treasury payments on securities used to price everything from mortgages to municipal bonds, they now risk further erosion of the public’s faith in their ability to manage the economy. That would be difficult terrain for Biden and Republican leaders even in the best of circumstances. Powell and other Fed leaders have signaled that they’re unlikely to cut interest rates until they’re confident that the price spikes are under control. Meanwhile, inflation has persisted longer than Federal Reserve Chair Jerome Powell would like. And even as Americans have kept spending money, large retailers and bank card data suggest that they’re starting to reel it in. Consumer confidence gauges are flashing red. After a wave of failures of regional banks, community and mid-sized financial institutions are starting to pull back from credit markets. In some respects, it’s remarkable they haven’t begun to falter. That could feed into how Wall Street responds to whatever deal Biden negotiates with GOP leaders. will maintain its dominance over financial markets, the repeated crises are “chipping away” at investor confidence. While she believes policymakers will reach an agreement and that the U.S. “It’s embarrassing as a country that we get to this point,” Johnson told the audience. ![]() Graham blasts House GOP for debt deal: ‘I can’t believe you did this’
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