formation

By Le Figaro with AFP

Published on 05/16/2023 at 12:16

The United States is already feeling the concrete effects of the political crisis of the debt ceiling, according to Treasury Secretary Janet Yellen, who cites in particular the increase in the cost of borrowing for the American government. “Investors have become more reluctant to hold sovereign debt maturing in June“, underlines the Minister of Finance in a speech which she must deliver on Tuesday before the Association of local American bankers (ICBA) and of which the Treasury has published extracts in advance. The interest rate on one-month US Treasury bills thus rose to 5.74% on Monday, the highest for at least twenty years, against 3.29% in mid-April. It is significantly higher than the key rate of the US central bank, located in a range between 5.00% and 5.25%, a rarity.

This surge in the rate reflects the fall in the price of these Treasury bonds, which moves in the opposite direction of the rate, and which has therefore fallen significantly. This conjuncture forces the US government to borrow more expensively than under ordinary conditions. On Thursday, the US Treasury had to offer investors a yield of 5.50% for four-week Treasury bills, which will mature on June 13.

Default of payment envisaged from June 1

However, according to US government projections, a payment default is envisaged as of June 1, for lack of raising the debt ceiling, repeated Janet Yellen on Monday. This limit can only be increased by a majority vote in Congress. But as it stands, the Republicans in the House of Representatives refuse to raise the ceiling without compensation and a strict framework for public spending. The American President Joe Biden is due to meet with parliamentary opposition leaders, including Republican Speaker of the House of Representatives Kevin McCarthy, on Tuesday to try to find a compromise.

In addition to increasing the cost of borrowing for the United States, “too many companies have to spend time preparing for the event of defaultof the country on its debt, explains the Secretary of the Treasury in this speech. “And too many households have to worry about whether they will get by without the money promised to them by the government.“, she adds.

By Le Figaro with AFP

Posted on 05/15/2023 at 4:00 p.m.

The manufacturing industry in the New York area recorded a very sharp decline in May, despite an upturn in April. Industry falters on sharp drop in new orders and employment as economy slows on rate hikes. The index measuring the evolution of manufacturing activity in this highly industrialized region plunged 43 points in May compared to April, falling to -31.8, according to the monthly Empire State survey, published Monday by the antenna of New York from the American central bank (Fed) and carried out with industrialists in the region.

Analysts expected a much less pronounced decline, and saw the index fall to -1.8 only, according to the consensus of Briefing.com. “Manufacturing activity has fallen significantly in New York State“, underlines the Fed. “New orders and shipments plunged after surging significantly last month. Delivery times have shortened somewhat and stocks have contracted“, specifies the central bank.

Conditions of employment are deteriorating

The rise in prices remained essentially identical to that of the previous month. However, companies in the sector have slowed down their investment plans and are still expecting “little improvement in conditions over the next six months“. As for the conditions of employment, they continue to deteriorate. Thus, the index measuring the number of employees remained negative, for the fourth month in a row, while that measuring hours worked fell below zero, which indicates a “slight decline» employment and number of hours worked.

To stem high inflation, la Fed has, since March 2022, raised its main key rate by 5 points, from 0 to 0.25%, to 5.00-5.25%. This leads banks to raise the cost of the loans they offer to households and businesses, to weigh on consumption and investment. Inflation, however, has not only slightly backward in April in the United States, at 4.9% over one year against 5.0% in March, according to the CPI index. However, it rebounded to 0.4% against 0.1% in March, over one month.

The risk is to see the economy slow down too much, or even fall into recession. Companies, anticipating this, are slowing down their investments and their orders, which weighs on industrial production.