Regionalization Takes Shape as G7 Pitches ‘De-Risking’
As a debt-ceiling resolution in the US remained elusive, G7 leaders met in Japan where supply chains and economic security were at the center of conversations.
The US will avert a default under an agreement to raise the debt ceiling in exchange for spending reforms, turning the spotlight back on still-hot inflation and a wavering outlook for interest rates heading into the Federal Reserve’s June meeting. After its passage in the House, the debt pact between the White House and congressional leaders is headed toward a vote in the Senate just days before a June 5 deadline by which the Treasury could run out of money to cover interest payments on the nation’s debt. With a resolution in place, markets are likely to refocus attention on the path for inflation, monetary policy and the global economy, as well as the ramifications of lifting the borrowing limit, assuming the Senate passes the debt-ceiling bill. The Treasury is expected to issue a large block of new debt over the coming months to replenish its cash balance, thus draining liquidity from the system by reducing banks’ reserves.
The jobs report due on Friday will factor into the Fed’s plans. Economists anticipate that hiring and wage gains eased in May, even as a Labor Department report showed that job openings unexpectedly jumped to 10.1 million in April. In remarks on Wednesday, Fed Governor Philip Jefferson made a case for pausing to give officials more time to assess the impact of prior rate increases. Philadelphia Fed President Patrick Harker suggested the Fed “really should skip” a rate hike in June, adding that Friday’s jobs data could change his mind. The current environment, with several plausible scenarios for the US economy still in play, calls for doubling down on diversification.
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