TSLombard with the note. Hmmm…
Treasury Secretary Yellen kicked off this latest round of debt ceiling workarounds by announcing that the ceiling has been hit and extraordinary measures are now being taken to push out the cash-exhaustion date to June 2023. Protracted arguments will now ensue with opponents frozen in their positions, power politics at its best, with threats for budget/debt Armageddon. The “Freedom Caucus” held up McCarthy’s Speakership, in part, to ensure they had this moment to impose their budgetary will. The nation has been here many times before. The real story in the coming months, during which net new Treasury issuance drops to zero and Treasury’s balances at the Fed are run down, is that whatever constraining impact current QT has had (very little), it will be gone, rendered moot. Count this as one more easing of financial conditions, with the FOMC losing further control of its narrative (We are still restrictive!!!!!).
Resolution to the debt ceiling will be reached once the balance is found between the Freedom Caucus threats to McCarthy’s hold on the Speakership and knowing they can be easily outvoted in the House – once McCarthy allows a vote. Democrats control the Senate. The caucus will get some of what they want, such as caps on government spending (defence and discretionary). The debt ceiling will, in the end, be suspended until next year, thereby kicking-down-the-road any true effort to remedy the structural budget imbalance.
