The U.S. Congressional Budget Office (CBO) stated on Tuesday that if the debt ceiling bill is passed in Congress, the budget deficit is expected to be reduced by approximately $1.5 trillion over the next 10 years.
This improvement in the U.S. government’s fiscal position will decrease the future debt burden. It is positive news for the U.S. stock market as it reduces the risk of government default and boosts investor confidence.
If you want to make a trading recommendation based on this news, consider the following:
- You can be bullish on the overall trend of the U.S. stock market, particularly in sectors that benefit from government spending and fiscal stimulus, such as infrastructure, energy, and technology.
- You may consider increasing your position moderately or purchasing U.S. stock index funds or exchange-traded funds (ETFs), such as the S&P 500, Nasdaq 100, etc.
- Given that the passage of the debt ceiling bill may enhance the credit rating and attractiveness of the U.S. dollar, supporting its exchange rate, you might consider going long on the U.S. dollar.
- It would be prudent to moderate your bond investments since the passage of the debt ceiling bill may lead to higher yields on U.S. Treasuries, resulting in lower bond prices.
The Congressional Budget Office (CBO) stated on Tuesday that a debt ceiling bill is expected to reduce the budget deficit by about $1.5 trillion over the next 10 years if it passes through Congress.
In a letter to congressional leaders, the nonpartisan federal agency estimated that the proposed spending limits for 2024 and 2025 would decrease the federal budget deficit by nearly $1.5 trillion over the 2023-2033 period.
The CBO projected that discretionary spending would decrease by $1.3 trillion over the 2024-2033 period, while mandatory spending would be reduced by $10 billion. Additionally, revenue would be reduced by $2 billion, and interest on the public debt would decrease by $188 billion.
Over the weekend, President Biden and House Speaker McCarthy reached an agreement on the debt ceiling and released the text of the debt ceiling bill.
The bill suspends the debt ceiling for two years, limits the non-defense fiscal budget for fiscal years 2024 and 2025, and cuts some fiscal spending related to social benefits. Key elements of the bill include the suspension of the debt ceiling until January 1, 2025, limits on budget spending in 2024 and 2025, streamlining of the review process for energy programs, ending of student loan forgiveness, increased work requirements for receiving social benefits, and the recapture of unused Covid bailout money and some IRS funds.
The 99-page bill authorizes more than $886 billion in security spending for FY 2024 and over $703 billion in non-security spending in the same year, excluding certain adjustments. It also authorizes a 1 percent increase in security spending for fiscal year 2025.
Passing the First Hurdle
According to media updates, the U.S. House Rules Committee passed the bipartisan compromise bill on Tuesday evening EST with seven votes in favor and six against, removing the first major obstacle for the bill to be finally signed into law.
According to the tentative House voting schedule, the bill is expected to be voted on by the full House at approximately 8:30 p.m. EST on Wednesday.
If passed by Congress, the bill would prevent the U.S. government from defaulting on its debt, ending weeks of bipartisan “tug-of-war” over the debt ceiling.
While some hard-line Republicans and progressive Democrats are currently criticizing the bill, it seems that the number of opponents is not yet sufficient to prevent its passage in Congress, based on the information gathered so far.
Both Biden and McCarthy are confident of securing enough yes votes.
U.S. Treasury Secretary Yellen stated on Friday that, according to the latest data, if Congress does not raise the debt ceiling, the government may run out of cash on June 5, four days later than the previously forecasted June 1 deadline.
Any opinions and information provided are for informational purposes only and do not constitute investment advice or recommendations. Investors are solely responsible for the consequences of any investment decisions made based on the information or opinions provided, and we do not assume any responsibility.
We are not liable for any direct or indirect losses resulting from the use of or reliance on the information or advice provided.
Investors should conduct their own research and evaluation of markets, securities, and other investment instruments, and make investment decisions based on their own risk tolerance.
Please note that investing involves risk and may not be suitable for everyone. Investors should carefully consider their investment objectives, risk tolerance, and financial situation before making any investment decisions.