The International Monetary Fund (IMF) recommends the US Federal Reserve to keep raising interest rates for a longer period to bring inflation under control. The IMF also urged the Biden Administration to tighten fiscal policy to reduce federal debt. This would see a 25 bps rate hike in June by the Fed.
IMF Managing Director Kristalina Georgieva said the U.S. Congress also needs another way to regulate debt eliminating debt ceiling brinkmanship through the annual appropriations process.
“The sooner this adjustment is put in place, the better. It is worth noting that the fiscal adjustment can be front loaded, and by doing so it would help the Fed in its efforts to reduce inflation.”
US Federal Reserve to Hike Rate By 25 Bps in June
US Fed officials don’t see a pause or pivot to rate hikes currently, and believe the FOMC must continue raising federal funds rates to over 6%. At present, the federal funds rate stands at 5% to 5.25%.
On Friday, the annual PCE core inflation, the Fed’s preferred gauge to measure inflation, came in at 4.7% in April against the expected 4.6%. The jobs market also remains tighter. This gives the Fed more room to continue hiking rates this year.
The market expects a higher probability of a 25 bps rate hike in June. According to CME FedWatch Tool, the 25 bps rate hike in June by the Fed has a 64% probability, as compared to 17% a week ago.
The Biden-McCarthy debt ceiling deal has reached bipartisanship to raise the debt ceiling for two years, with final touches to complete before the debt default deadline. The US Treasury Department’s cash balance falls to $38.84 billion from $316 billion earlier in May.
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Stock and Crypto Markets To Crash?
The stock and crypto markets will move into a correction phase as the US Treasury Department expects to issue $600-$700 billion in Treasury bills weeks after the debt ceiling deal. This will take the focus off equities and cryptocurrencies, with Bitcoin likely to fall and then rise after a few weeks due to the US dollar liquidity crunch.
The US dollar index (DXY) jumped over 104.25 on Friday after the PCE inflation data. Investors to keep an eye on the US dollar and treasury yields as Bitcoin moves opposite to these.
BTC price trades at $26,756, up nearly 2% in the past 24hrs due to positive sentiments regarding the debt ceiling deal. The 24-hour low and high are $26,370 and $26,916, respectively. The crypto market cap rises over 1% in the past 24 hours.
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