The hot topic in the market is "Will US raise the interest rates again"?

The hot topic in the market is "Will US raise the interest rates again"?

During covid US printed money to support the people lost jobs. It passed a number of stimulus packages, including the CARES Act, the American Rescue Plan, and the Infrastructure Investment and Jobs Act. 

These packages included "direct payments" to individuals, loans and grants to businesses, and funding for state and local governments. 

The total amount of money that the US government printed during the pandemic is estimated to be around *$13 trillion*.

And after the Covid recovery, US started facing the "Inflation problem". 

The Inflation in US *0.30% in 2020*, went up till *9.1% in 2022*.

So, the US Govt forced to increase the Interest rates from near 0% to 5.25%

Not only that, the US govt borrowed money from public at the prevailing rates to fund Govt. projects. That is how it can suck out the excess liquidity from system. So that the Inflation will come down. 

*Where is the Problem now?*

The US govt. cannot borrow money endlessly. It has a ceiling of $31.4 Trillion. 

Now the ceiling is almost reached. What is means? it means, the US govt. cannot borrow anymore from public. 

*What will be impact?*

The impact will be huge that US govt cannot pay its bills. It will practically default the payment of bills, interests and old loans. 

*What will happen now*?

The case is very simple to handle. The US govt has to incease the "Debt Ceiling" so that it can borrow again. This revision in debt ceiling was done 80 times in history and US continued to borrow money. 

So, there is no doubt that US will increase the Debt Ceiling. 

But the impact is showing in *US Dollars* as the US govt. is expected to borrow more the $ rates are shooting higher to closer to old levels of Rs.83. 

The Gold is coming down anticipating the "Interest rate" hike as the US govt going to borrow more. 

Crude is shooting higher anticipating lower demand in future. 

Having said that, the Inflation is cooling down in US @ below 5% levels which is a positive sign.

Lets see what is going to happen next in economy. || Hassan Ali @Siptiger

Share: