Debt Ceiling And Interest Rates

bobert456 | May 16, 2023 | 187 posts since 2022

I have CD ladders going on, but we are only about two weeks away from the potential of default for the debt ceiling. Officials anticipate that IF that were to happen, we could see interest rates HIKE as a result.

I am hopeful that we do not default, and even if we do, I am hopeful that it would be short term.

That said, I am hoarding CASH for now, just in case. I would expect that rate hikes might be very short term, so I will keep some cash liquid to quickly take advantage of what may, hopefully, be a short term event.

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Kaight | May 16, 2023 | 1,192 posts since 2011

Couple of thoughts on default:

It's important to bear in mind there are more than enough votes in Congress to avoid default; it's just that they are in the wrong place. And certainly President Biden wants to avoid default. So let's break down the former:

First, the Democrat Senate will vote to spend whatever it takes; we must instead look at the House. There are easily enough House votes to avoid default. Every House Democrat will vote to increase the national debt as necessary. And there are more than enough House RINOs whose votes added to the Democrat votes would readily support raising the debt limit. So no problemo, right?

No, sorry, there is a problem. Because if House Speaker Kevin McCarthy allows a House debt ceiling vote needing Democrat votes to pass, he will no longer be Speaker. Remaining Speaker is very important to Kevin, and therein lies the dilemma.

I have thought about this, wondering whether McCarthy could enter into a deal with the Democrats where some of them would switch their votes to him in the inevitable subsequent Speaker battle. I don't think McCarthy is that stupid. He knows Democrats cannot be trusted to honor deals. Case in point:

Consider the Democrat deal last year to obtain Manchin's vote for the so-called "Inflation Reduction Act". When the Democrats later reneged, Manchin threw a fit. And he's still to this day barking at every opportunity about how he was hornswoggled.

So how will all this intrigue be resolved in the next two weeks, with Biden leaving for Japan tomorrow? You'll just have to stay tuned. I certainly don't have that answer.

LongTimeDAFan | May 16, 2023 | 69 posts since 2022

The House has already passed a bill. It is up to the Senate and the president to pass a bill.

w00d00w | May 16, 2023 | 360 posts since 2012

i'm skeptical that passing the X date without an agreement will have a substantial effect on savings account rates. though do expect high volatility in the stock and bond market in that scenario

txFish1 | May 16, 2023 | 479 posts since 2023

Agreed. Do not think it will have much affect on savings or CD rates but will have an affect on Bond and stock markets

JeffinEasternFL | May 16, 2023 | 744 posts since 2020

It'll still be just short(er) term rates that jump by more than a few BPS, IF that actually comes to pass. Rates peaked 2~ months ago for over 36-month CDs. Too much bank risk exists current with recent failed bank sand the memories of 2008 remain in banker's minds. Unless somehow inflation (which is about/supposedly only 3.1~% annually as measured by CPI-W) somehow manages to increase more than a few BPS then maybe the Fed will hike more than one more time in 2023. I doubt it...I locked in 4 Jumbo CD's of close to $1M at 27 months thru 60 months maturity this past January thru March with a maturity occurring in each CY through 2028. All at 5% or greater SPY. Glad I did!

lou | May 16, 2023 | 1,004 posts since 2010

Anyone venture to guess what the yield will be for the 4-week treasury auction on Thursday.

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