It appears Congress has reached a resolution on the debt ceiling standoff and the Fiscal Responsibility Act of 2023 is now headed to President Biden's desk for signing into law.
But could there be elements of this deal that actually increase the odds of a recession happening soon?
When indeed the debt ceiling is raised, the US Treasury will be forced to replenish the Treasury General Account by selling somewhere around $1 trillion in bonds.
This will vacuum up liquidity from the system. In similar fashion, the FRA will re-start payment of student loans for the first time in over 2 years for 45 million households.
These repayments will take a bite out of consumer spending when real retail sales are already declining. Will these factors overwhelm the relief the raising of the debt ceiling is expected to provide?
And if so, are markets not yet pricing this in?
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