Uncertainty Looms as US Debt Limit Talks Continue

The ongoing debt limit talks have left the market feeling unsettled. While Powell's dovish hints suggest a possible pause on interest rate hikes in June, hawkish comments from other Fed officials and better-than-expected economic data have made the market nervous.

The ongoing debt limit talks have left the market feeling unsettled. While Powell's dovish hints suggest a possible pause on interest rate hikes in June, hawkish comments from other Fed officials and better-than-expected economic data have made the market nervous. Yellen has warned that the US may hit the debt limit in June, and the continued delay is only adding to market anxiety. Market scenarios range from a last-minute agreement, a deal reached on June 1, to a breakdown in negotiations.

Even if the debt limit crisis is resolved, the market may still face risks. If the US issues trillions in debt to fill the TGA account, the market's liquidity could be drained by subsequent Treasury issuances, and the banking system could face significant risks. Looking back at 2011, Congress only raised the debt limit at the last minute, and it took several months for US stocks to recover, leading to a downgrade in the US credit rating.

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