macroVS Episode 19: The Unavoidable and Deepening Debt Ceiling Drama

How the G7 summit and climate change policies complicate debt ceiling negotiations and the June monetary policy rate setting decisions

May 21, 2023

∙ Paid

UPDATE AS OF 6 PM ON SUNDAY, 21 MAY 2023

Staff talks between the White House and Congress resume at 6 pm tonight (in a few minutes). POTUS and the Speaker of the House will meet tomorrow

Speaker McCarthy is sounding an optimistic tone, as reported by AP News:

“We’re looking at, how do we have a victory for this country?” McCarthy said. “How do we solve problems? He said he did not think the final legislation would remake the federal budget and the country’s debt, but at least “put us on a path to change the behavior of this runaway spending.” The White House confirmed the Monday meeting and late Sunday talks but did not elaborate on the leaders’ call.

Reuters provided a helpful comparison table that can serve as a cheat sheet for comparing the technical details in play:

Separately, President Biden continues to repeat his intention to repeal subsidies currently available to the oil and gas industry; he estimates the savings for agreeing to this requirement would be $30bn.

UPDATE AS OF NOON ON SUNDAY, 21 MAY 2023

As President Biden prepared to board Air Force One in Japan in advance of the long flight back to the United States, he held a press conference reported by AP News signaling the onset of real negotiations on the debt ceiling. The relevant passage in the news item:

“Biden made clear at his closing news conference before leaving Hiroshima that “it’s time for Republicans to accept that there is no deal to be made solely, solely, on their partisan terms.” He said he had done his part in attempting to raise the borrowing limit so the U.S. government can keep paying its bills, by agreeing to significant cuts in spending. “Now it’s time for the other side to move from their extreme position.”

The Speaker of the House reportedly responded

“Let’s find a place where we can find common ground,”

The path from here will still be long.

The only concrete budget cuts so far proposed publicly by President Biden are the elimination of $30bn in subsidies for the oil and gas industry, which by itself is not an olive branch to the Republican Party.

Other news stories during the week indicated the President would be willing to relinquish unspent COVID-19 stimulus funds and maintain (rather than increase) defense spending for the next two years. Leaks to Reuters this morning indicated that

“the Biden administration had proposed keeping non-defense discretionary spending flat for the next year.”

Negotiations have now begun in earnest with leaks and policy posturing approaching normal levels this morning. As expected in the original podcast which aired this morning, the last full week of May is poised to deliver significant headline risk as negotiations begin in earnest.

This podcast believes that what policymakers say matters. A lot. We measure the momentum and commitment levels in policy language so that strategists can spot signals hiding in plain sight and make strategic forward-looking decisions based on concrete, objective, volume-based data.

Last week, in Episode 18, we dove into the details of the G7 Ministerial Communique to show that China-related geoeconomic priorities and climate-related imperatives were as much in play for the global macro arena than the debt ceiling. This week, we show how the climate policies complicate debt ceiling compromise efforts.

The Chart of the Week again focuses on the debt ceiling. The quantitative momentum data illustrates graphically and starkly that policymakers remain “all talk and no action.”
The Quote of the Week (the language data) tells us that how and why fiscal policy compromises in the United States are so elusive.
The top weekend read further underscores the contours of the difficult policy choices at hand and what it means for the rate setting sessions in June.

Buckle up. The next 11 days will be volatile.