The Republicans and the Democrats have reached a bipartisan deal on the debt ceiling that is expected to be raised in a timely manner in order to enable the U.S. government to resume borrowings. Federal budget nondefense spending in the fiscal year of 2024 will be left roughly at the same level as 2023, while spending is expected to be raised by 1% in 2025. Republicans pushed cuts to the social programs as a part of the deal. Some recipients of the government aid assistance will face additional requirements, and some assistance will be paused.
The U.S. consumer activity was partially supported by the assistance funds released by the Federal government. Bloomberg estimates the chances of a recession in the coming 52 week to be at 65%.
The increase of the debt ceiling suggests that borrowings of $1.1 trillion will be made by the end of 2023. This is a very large amount of the first-class securities that will certainly elevate investors’ attention. This may also prompt the capital to move from bank deposits to the debt with higher yields, aggravating U.S. banking sector troubles. This, in return, may increase volatility in the market and increase the economic slowdown.
Interest rate hikes expectations by the Federal Reserve (Fed) keeps speculations muted. The battle of the Fed with high inflation stopped the rally of the risky assets that started in late 2021. However, the Fed has little choice, as persistent high inflation will eventually lead to economic turmoil. Rising borrowing rates also affect the Eurozone, capping its trade activity and inflating costs.
All this is translated into a very tense situation in the market with remote hopes for a rally in the crypto market. Traders should not be fooled by the recent spike of Bitcoin prices above $28,000 per coin. There are always more buyers in the market than sellers. So, it will take some time for the prices to pass strong support levels. Such situations are likely to occur after a spike when the bulls have no more resources to support the rally. It seems that this is the moment now. Thus, BTC prices are likely to return to $24,000 per coin with a high risk of dropping below this level.