The Independent Market Observer

What Mattered This Week? The Debt Ceiling, the Data, and the Fed

Posted by Brad McMillan, CFA, CAIA, MAI

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This entry was posted on May 19, 2023 2:09:32 PM

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debt ceilingThe big news this week was the debt ceiling: who was talking, what they were saying, and if we will get a deal before the X date (i.e., when the Treasury runs out of money). When all was said and done, more was said than done and we ended the week pretty much where we started. But there was some good news.

Debt Ceiling Update

First, negotiations—serious, with a picked team on each side—are underway. Talking is a prerequisite to cutting a deal, and that has begun. More, the leaders of both branches of Congress are setting up to pass legislation to implement any deal that is cut. All the pieces are in place to put this to bed in time to avert a problem, if a deal is in fact agreed on. Here, too, the signs are positive, but not in an obvious way. Congresspeople from both sides are starting to make noises about how they would rather default than have a bad deal, which is likely a sign they do expect a deal to be cut.

Signals from the Fed

Another good sign for a deal is that members of the Fed, who hopefully are well informed about the state of play with the debt ceiling, have started to publicly raise the possibility of more rate increases, rather than the pause most analysts were assuming. If they really anticipated a debt ceiling issue, those comments would likely have been put on hold. Beyond the debt ceiling, the Fed’s willingness to raise rates again is also a positive sign for expected economic growth. Clearly, it doesn’t see a significant downturn ahead.

Positive Economic Data

And that is the third thing that mattered this week, which is that both retail sales and industrial production came in stronger than expected. Retail sales, in particular, had a meaningful bump after two months of declines. The housing industry also showed signs of picking up, as builder confidence moved to the highest level since July 2022. While talk of a recession continues, the actual data continues to be pretty good. That is more good news.

That is what really mattered this week. It was, overall, a good one for economic news. Real risks remain—next week will be crucial for the debt ceiling confrontation—but so far, so good.

Have a great weekend!

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