Dow declined 139, advancers over decliners 4-3 & NAZ edged up 33. The MLP index was off fractionally to the 225s & the REIT index went up 1+ to 361. Junk bond funds were mixed & Treasuries had only modest selling. Oil added pennies in the 71s & gold continued weak, down 5 to 1975.
AMJ (Alerian MLP Index tracking fund)
Treasury Secretary Janet Yellen said that she believes the country's chances of paying all its bills by Jun 15 are "quite low" & warned that some bills will go unpaid if Congress fails to raise the debt ceiling. Yellen said that Jun 1 remains the hard deadline for Congress to reach an agreement. "And my assumption is that if the debt ceiling isn't raised, there will be hard choices to make about what bills go unpaid," Yellen added, stopping short of saying which specific bills would go unpaid. Pres Biden's administration & Reps led by House Speaker Kevin McCarthy are at a standstill over raising the country's borrowing limit, now at $31T, to keep paying the nation's bills. Negotiations early Fri ended abruptly before the teams reconvened in the evening, only to quickly conclude for the night. Reps are demanding steep spending cuts opposed by Dems, while Dems insist that Reps agree to tax hikes on the wealthy, in addition to spending cuts, to close the deficit. With the Jun deadline approaching, Yellen said it is "not an acceptable situation" for the US to be unable to pay its bills in any scenario. "I would say we are focused on raising the debt ceiling and there will be hard choices if that doesn't occur," she said. "There can be no acceptable outcomes if the debt ceiling isn't raised, regardless of what decisions we make."
Yellen gives odds of US paying all its bills as debt deadline looms
Minneapolis Federal Reserve Pres Neel Kashkari on Monday said he's open to holding off on another interest rate hike next month, but cautioned against reading too much into a pause. "Right now it's a close call either way, versus raising another time in June or skipping," he said. "Some of my colleagues have talked about skipping. Important to me is not signaling that we're done. If we did, if we were to skip in June, that does not mean we're done with our tightening cycle. It means to me we're getting more information." Markets currently are putting about an 83% probability that the rate-setting Federal Open Market Committee holds off on what would be an 11th consecutive increase when it convenes June 13-14, according to the CME Group's FedWatch tracker of futures prices. Beyond that, traders see the Fed likely cutting about ½ a percentage point off rates before the end of the year, a nod toward inflation moving lower & the economy slowing. Central bank officials have been unified in saying they don't expect cuts this year. Kashkari said that if inflation doesn't come down, he would be in favor of increasing rates again. "Do we then start raising again in July? Potentially, and so that's the most important thing to me is that we're not taking it off the table," he added. "Markets seem very optimistic that rates are going to fall now. I think that they believe that inflation is going to fall, and then we're going to be able to respond to that. I hope they're right," he continued. "But nobody should be confused about our commitment to getting inflation back down to 2%." Fed Chair Jerome Powell on Fri suggested that the recent stresses in the banking system could slow down the economy enough that policymakers can afford to be less aggressive. Kashkari said that's possible, though he added that so far there have been only scant signs of a more macroeconomic impact from the recent banking problems. “This is the most uncertain time we’ve had in terms of understanding the underlying inflationary dynamics. So I’m having to let inflation guide me and I think we’re letting inflation guide us. It may be that we have to go north of 6%” on the fed funds rate, he said. “If the banking stresses start to bring inflation down for us, then maybe ... we’re getting closer to being done. I just don’t know right now.”
Fed’s Kashkari says a June pause on rates wouldn’t indicate an end to hiking cycle
America's top economists expect that inflation will remain persistently high thru 2023 & 2024, according to a new survey by the National Association for Business Economics (NABE). NABE released its May 2023 outlook survey which found that 98% of the business forecasters surveyed expect inflation, as measured by the consumer price index (CPI), to remain above the 2% year-over-year inflation rate targeted by the Federal Reserve. The most recent inflation report that was released earlier this month put inflation at 4.9% year-over-year based on Apr data. Just 2% of NABE forecasters surveyed said they believe inflation will have slowed to 2% by H2-2023, while a 59% majority don't believe inflation will decline to the Fed's target level until 2025 or later. The median forecast sees inflation getting closer to the 2% target rate in 2024, but remaining slightly above that threshold, as inflationary pressures are expected to gradually ease while remaining above the target level this year & next. The median forecast sees personal consumption expenditures price index (PCE) inflation less food & energy declining from 4.9% in Q1-2023 to 3% by Q4 of this year, before declining to 2.4% in Q2-2024 & 2.2% in Q4-2024. The Federal Reserve's efforts to tamp down inflation through efforts to raise interest rates are viewed as both the biggest potential downside & upside risks to the economy. A 68% majority of NABE panelists responded that the Fed achieving its desired "soft landing" by taming inflation without inducing a significant recession is the greatest upside risk to the economy. Regarding the greatest downside risk facing the economy, a 42% plurality of NABE panelists said that "too much monetary tightness" poses the most significant threat to the economy. The median response of the NABE survey found that forecasters expect the Fed to pause its campaign of interest rate hikes thru the end of the year before starting to cut rates at the start of 2024. It found that the benchmark federal funds rate target will remain at 5.125% from Q2-Q4 of 2023 before cuts occur that lower it to 4.625% in Q1-2024, 4.375% in Q2, 3.875% in Q3 & 3.583% in Q4 next year.
Inflation to remain high for 2023, 2024: NABE survey
Talks about the debt ceiling remain stuck in the mud. This condition will probably drag on until the end of May, if not a little later. Meanwhile Fed officials see they same economic data & are trying to make sense of it all.
Dow Jones Industrials
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