• Yesterday, Biden and McCarthy did not agree on the debt ceiling in the US, which could have direct implications for the financial markets and Bitcoin.
• The Fed’s attempts to fight inflation would be impacted if Congress fails to raise the debt ceiling.
• Jurrien Timmer, Director of Global Macro at Fidelity Investments, has commented on this issue and how it affects liquidity levels in the stock market and Bitcoin prices.
Biden-McCarthy Meeting Fails To Reach Debt Ceiling Agreement
Yesterday’s meeting between President Joe Biden and House Minority Leader Kevin McCarthy did not result in an agreement on raising the debt ceiling of the United States. This could have direct implications for both the entire global financial market system as well as Bitcoin prices.
Fed Chair Jerome Powell’s Response To Question About Debt Ceiling
During yesterday’s Federal Open Market Committee (FOMC) press conference, Chairman Jerome Powell was asked about what would happen if Congress does not raise the debt ceiling. His response was clear: “There’s only one way forward here, and that is for Congress to raise the debt ceiling so that the United States government can pay all its obligations.” He further warned that no one should assume that the Fed can protect from economic consequences if action is not taken in a timely manner.
Debt Ceiling’s Impact On Bitcoin Price
Jurrien Timmer, Director of Global Macro at Fidelity Investments, has commented on this matter by explaining how it affects liquidity levels in both traditional markets as well as Bitcoin price fluctuations. Since last year when Fed began tightening through higher interest rates and quantitative tightening (QT), overall liquidity has been declining – however this decline has been offset by an influx of liquidity from reverse repos (RRP) and Treasury General Account (TGA). Remarkably enough, both stock market and Bitcoin stopped falling at this point due to their correlation with traditional markets. Timmer describes how Fed monetizes Treasury’s debt thus generating income on its portfolio – creating a cycle of sorts between US government debt, Fed balance sheet and TGA balances.
The Implications Of A Failed Debt Ceiling Agreement
If Congress fails to reach an agreement over raising US government’s debt ceiling then it could have massive implications for efforts made by Federal Reserve to fight inflation – something which could drastically affect stock market performance as well as Bitcoin prices worldwide.
It remains unclear what will happen if Biden-McCarthy meeting fails to come up with an agreement regarding US government’s debt ceiling – however one thing is certain; it could have serious consequences for traditional stock markets as well as crypto asset such as Bitcoin globally.