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Weekly Economic Update: U.S. Debt Ceiling, Fed Officials’ Comments, and Global Economic Outlook

Weekly Economic Update: U.S. Debt Ceiling, Fed Officials’ Comments, and Global Economic Outlook

Investors will be waiting for an update on the U.S. debt ceiling this week, and officials at the Federal Reserve will be listening for clues in their comments about where interest rates are headed. While news from the Eurozone, the United Kingdom, and China will provide more insight into the strength of the global economic outlook, equity markets are likely to stay in the doldrums.

The visits of numerous central bank officials in the coming days will be eagerly observed because investors fear that the Fed’s rapid rate hikes could send the economy into recession.

Michael Barr, the Fed’s vice chair for supervision, will speak before Congress about recent strains in the banking industry and the central bank’s response. Ben Bernanke and Fed Chair Jerome Powell will take part in a panel discussion on monetary policy in Washington on Friday.

The Minneapolis Fed President Neel Kashkari, Cleveland Fed Governor Loretta Mester, New York Fed President John Williams, and governors Philip Jefferson and Michelle Bowman are among the other Fed officials set to participate this week.

If inflation remains high, Bowman said that the Fed will likely need to raise rates once more.

On Tuesday, the United States will also disclose data for April’s industrial output and retail sales. Retail sales are anticipated to increase. On Thursday, the weekly report on new unemployment claims is expected.

Investors are feeling the pressure of a possible June 1st U.S. default due to the impasse in Congress over extending the borrowing ceiling.

If Congress does not increase the amount of debt the nation is legally permitted to take on, the United States faces a “significant risk” of defaulting within the first two weeks of June, the Congressional Budget Office said on Friday.

The $31.4 trillion debt ceiling discussion between U.S. President Joe Biden and key senators is expected to pick back up early this week after a scheduled meeting on Friday was postponed to allow staff to continue discussions.

Democrats maintain that lifting the debt ceiling is not the proper way to implement budget improvements, in contrast to Republicans who insist on draconian expenditure cuts in exchange.

The International Monetary Fund has cautioned that a U.S. default would certainly result in increased interest rates as well as other “very serious repercussions” for the U.S. economy and the world economy.

As a result of worries over the debt limit standoff and monetary policy, U.S. stock markets closed last week largely lower, with the Dow Jones Industrial Average down 1.1%, the S&P 500 down 0.3%, and the Nasdaq up 0.4%.

Data released on Friday that revealed a sharper-than-anticipated decline in consumer confidence in the United States contributed to concerns that political wrangling over extending the debt ceiling could lead to a recession.

Meanwhile, confusion over whether the central bank will suspend rate hikes next month as had been generally anticipated was increased by statements made by Fed members on Friday.

The Fed hinted earlier this month that it would postpone further rate increases while it evaluates the effects of its previous tightening and the ongoing stress on the banking sector on lending and credit.

In the coming week, several firms are expected to report earnings, including Walmart (NYSE:WMT), Home Depot (NYSE:HD), and Cisco Systems (NASDAQ:CSCO).

On Tuesday, the Eurozone is scheduled to reveal revised first-quarter GDP figures. According to economists’ projections, the Eurozone’s economy grew by just 0.1% in the three months leading up to March. According to some analysts, the current state of stagnation may eventually lead to a recession this year.

On the same day, the more prognostic ZEW Institute surveys of business conditions and sentiment in Germany, the largest economy in the region, will be made public.

The salary component data of Tuesday’s jobs report will be eagerly scrutinised in the UK, where inflation is still double digits. The Bank of England has stated that the release of the wage and inflation figures before its June meeting will determine whether or not rates be raised once again.

A flurry of economic statistics, including figures on retail sales, industrial production, and fixed asset investment, will be released in China on Tuesday. Retail sales and industrial production are anticipated to have increased at a quick annual rate, and fixed asset investment is anticipated to have increased significantly as well.

However, the monthly comparison may provide a more true comparison because the same time last year, China’s economy was still subject to stringent COVID lockdowns.

China’s second-largest economy is failing to pick up steam amid an uneven rebound after pandemic restrictions were relaxed, according to economic statistics released last week, raising questions about how much it can contribute to growth in the global economy this year.

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