Debt-Limit talks advance and there goes the cooling inflation narrative

  • Dollar approaches 2-month high; 2-year yield rises 8.1 bps to 4.616%, the 11th straight day of gains, longest streak since September
  • Fed’s Mester noted that the previous rate hikes will effect the econonmy
  • Inflation is looking stickier than ever as the PCE supercore surges

US stocks are rallying as Washington DC nears a debt deal ahead of the long weekend. ​ The risks that a debt deal could fall apart at the 11th hour remains, which makes Treasury Secretary Yellen’s update over the X-date critical.

Wall Street seems to be shrugging off some hawkish data that is making the June meeting a live one for the Fed. Once a debt deal is done, markets will have to deal with the harsh reality that the Fed is going to kill this economy. ​ The end of tightening might not occur until the end of summer and that means we will probably get bigger rate cuts next year. ​ ​ ​ ​


The Treasury cash balance is evaporating quickly, tumbling below $50 billion as lawmakers continue to inch toward a debt deal. ​ Optimism remains that the US won’t default on its debt as this deal appears to be giving out wins to both the GOP and progressives. Speaker McCarthy noted that there is no agreement, but that negotiators will continue to work through this weekend

The debt limit increase is expected to last 2 years, defense spending is expected to rise, renewable energy will get funding, but there are still some red lines, such as work requirements for entitlements. ​ This will be a long weekend for negotiations, but time is running out as once a deal is outlined, 72 hours is required for lawmakers to review the text. ​

US Data

A slew of hot economic data points are keeping the bond market selloff going strong. ​ The US economy is too resilient and this will force the Fed to not only deliver more tightening but to keep rates higher for much longer. ​ Fed rate cut bets will soon get pushed into next year as the economy remains somewhat hot, excluding the manufacturing sector.

The Fed’s preferred measure of inflation, the so-called core PCE, (personal consumption expenditures deflator) rose 0.4% for the month of April and on an annual basis climbed up to 4.7%, 0.1 ppts higher than forecast. Core service prices -ex rent posted the biggest rise in three months, which supports the argument that the service sector is not weakening.

Higher prices did not deter spending as that climbed more than expected to 0.8% in April. Incomes ticked higher as expected to 0.4%, which suggests the consumer is still going to spend in the future.


The dollar keeps on rallying as the 2-year Treasury yield rose for the the 11th straight day.  A potential Gartley pattern could identify point D around the 142.50 to 143.00 region.

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at Visit to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.

Ed Moya

Ed Moya

Contributing Author at OANDA
With more than 20 years’ trading experience, Ed Moya was a Senior Market Analyst with OANDA for the Americas from November 2018 to November 2023.

His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies.

Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Prior to OANDA he worked with, where he provided market analysis on economic data and corporate news.

Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business, cheddar news, and CoinDesk TV. His views are trusted by the world’s most respected global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Seeking Alpha, The New York Times and The Wall Street Journal.

Ed holds a BA in Economics from Rutgers University.