Is Mr. Market Ready for Another Debt Ceiling Debate?
It’s been a rough couple of months for Mr. Market. Equities — as measured by the S&P 500 — have climbed nearly 18 percent this year to date, but the growth was twice punctuated by taper tantrums, once in June and again in August. Interest rates, as measured by the yield on the 10-year Treasury note, have increased dramatically, climbing a full percentage point between May and September before settling down some in the wake of Wednesday’s monetary policy announcement.
That announcement, which came on the heels of a Federal Open Market Committee meeting, revealed that — contrary to expectations — the U.S. Federal Reserve would continue purchasing $40 billion worth of agency mortgage-backed securities and $45 billion worth of longer-term securities per month. To put it another way, the specter of the taper lives on to haunt Mr. Market until at least October 30, when the next FOMC meeting concludes — and, still, everywhere else the market turns, it faces uncertainty.
This is particularly true when it comes to the fiscal situation in the United States. Uncle Sam bumped his head against the $16.7 trillion debt ceiling back in May, and since then, the U.S. Treasury has been engaged in extraordinary financing measures. Come September 30, the government’s spending authority will expire, and by mid-October the Treasury will lose its capacity to continue borrowing.