• GDP growth rate in the US slows down to 1.1% in Q1 2023, raising concern for stagflation
• The Federal Open Market Committee is expected to raise rates by 25bps taking the federal funds rate to 5.00%
• Congress has raised the debt ceiling 78 times with Democrats and Republicans contributing 29 and 49 times, respectively.
GDP Slowdown Raises Stagflation Concerns
The U.S. economy grew at an annualized pace of 1.1% in Q1 2023, which came in slower than expectations and was forecasted to come in at 1.9%. This GDP print was significantly smaller than the previous two quarters, 2.6% and 3.2%, respectively, raising concerns of stagflation for the U.S..
FOMC Meeting Expected To Raise Rates
Next week’s FOMC meeting, which takes place on May 3, is expected to raise rates by a further 25bps taking the federal funds rate to 5.00%.
Debt Ceiling Drama
The U.S Department of Treasury defines debt limit as „the total amount of money that the United States government is authorized to borrow to meet its existing legal obligations“. According to data from 1960 corroborated by Lyn Alden, congress has raised the debt ceiling 78 times with Democrats and Republicans contributing 29 and 49 times, respectively; causing uncertainty in the market as it approaches this limit again now.
Implications
The slowdown of GDP growth rate combined with an increase in interest rates due to next weeks FOMC meeting could lead to a decrease consumer confidence which could have serious implications on global economic recovery efforts after Covid-19 pandemic damages; while also increasing pressure on public finances due to rising debt levels stemming from increased spending during pandemic relief efforts may hinder economic progress if not addressed soon enough..
Conclusion
It remains uncertain how these events will play out but one thing is certain: close monitoring and proactive responses are necessary for mitigating potential risks associated with both monetary policy decisions and fiscal policy issues such as rising debt levels; both domestically and globally