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What Mattered This Week? The Debt Ceiling, Inflation, and Jobs

Written by Brad McMillan, CFA®, CFP® | Jun 2, 2023 5:10:09 PM

I thought there would be only one thing that mattered this week—the debt ceiling. And that does matter. But this morning, the jobs report came in much hotter than expected, and that matters, too. So, this will be a longer post than I originally expected. 

Debt Ceiling Deal

For the debt ceiling, we now have not only a deal but a solution. The legislation to suspend the debt ceiling for this year and next has now cleared both the House and the Senate in votes that were not particularly close. As expected (at least by me), there is a responsible majority in government that is in favor of not letting the country collapse, so we did eventually get a deal. Also as expected, though, that deal happened at the last minute after a great deal of needless drama. Still, the important thing is that we do have a deal—score one for (eventual) responsible governance. But now that we do have one, we have to go right back to worrying about other things, primarily, inflation. 

Inflation Decline on Pause?

With the most recent prints coming in hotter than expected, the inflation data suggests that the significant decline we have seen this year may be pausing, if not reversing. The Fed, of course, has taken note of this. One consequence of the debt ceiling deal is that it took a big risk off the economic plate and freed the Fed to keep raising rates if it feels that's necessary. 

Job Growth Up

This morning’s strong jobs report suggests that it will. What the Fed wants to see is economic cooling, not acceleration—and acceleration is what the jobs report showed. Job growth was up sharply for last month, and prior months were revised upward as well. While wage growth slowed a bit, it still remains quite strong. More jobs at higher wages means more demand—and more inflation. And that is what the Fed will be thinking when it decides to raise rates. 

The Takeaways

So, there are three takeaways this week. First, Congress has decided not to blow things up, which is good. Second, growth continues, which is also good. Third, the Fed will keep raising rates, which is kind of bad but also kind of good. 

Two and a half out of three is pretty good for one week—and I will take it. Have a great weekend!