The noise
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On Wednesday, Bank of England Governor Andrew Bailey justified the actions taken by the BOE in the face of criticism that monetary policy in the UK was too loose in the past. He explained that even with the benefit of hindsight, “in the run up to the war in Ukraine, and with ample advanced warning… in order to keep inflation at around 2%, [the Monetary Policy Committee (MPC)] would have had to raise the Bank Rate well into double digits.” This, he claimed, was not possible at a time when the country was recovering from the pandemic and would have resulted in unemployment at a level much higher than it is today.
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After news last week that the US government had hit its debt ceiling, President Joe Biden affirmed his confidence that the US will not default on its debts in a press conference at the White House on Thursday. However sensationalist it may sound to hear that the US government may ‘run out of money,’ it actually happens periodically due to a limit on how much debt the federal government can issue. The Biden administration is looking to Congress to reach an agreement to raise the level of the debt ceiling – the risk being that the US Treasury could exhaust its cash balance, and extraordinary measures – such as funding Federal authorities through tax receipts – before Congress acts. President Biden was visiting the Asia Pacific region whilst negotiations were ongoing in the US.
The numbers
The nuance
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It was more of the same from BOE Governor Bailey on Wednesday. Whilst the MPC does expect inflation to fall sharply, the policymakers will take further action if the stickiness of the level of inflation persists, especially in the key areas of labour tightness, wages, and services. With most analysts predicting the BOE is nearing or is at the top of the rate raising cycle, the April inflation data for the UK, which will be published next Wednesday, will be a key barometer for the future Bank Rate in the UK.
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Despite President Biden’s confidence in a resolution, the damaging potential of an unprecedented US default, in the wake of a failure to raise the debt ceiling, could have global repercussions, and cause severe reputational damage for the US. The debt ceiling issue has come to the fore at a time when confidence in the private banking sector has been shaken by the collapses of the regional US banks covered earlier this year, resulting in material, public challenges for both the US central bank and private banks alike.
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The President’s trip to Asia, designed to demonstrate that the 80-year-old has the stamina for another term in office and to form geostrategic alliances, has been abruptly curtailed in order that he may finish negotiations at the Capitol on Sunday. Ultimately, Biden is in a difficult position, having to balance the domestic pressure to return for negotiations, at the expense of damage to international credibility in the face of cancelling historic visits to Papua New Guinea and Australia.
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