Experts say new debt sales could raise borrowing costs, trigger market volatility and drain cash out of bank deposits at a time when the banking system is recovering from a period of extreme turmoil. How the debt ceiling deal may shape the U.S. economy:
“It's definitely not nothing but it is relatively small,” says Gordon Gray of the American Action Forum.
Another key difference between now and 2011, added Evercore ISI strategist Tobin Marcus, "is just how different the macroeconomic situation is." Inflation is still high despite a campaign by the Federal Reserve to cool the economy over the last year with higher interest rates."That was a period of persistently low demand and zero interest rates coming out of a deep and also very long recession. Right now, if anything, we're still overheated,” he says.
The Supreme Court is also scheduled to rule on the legality of the president's effort to forgive up to $20,000 in federal student loans as soon as this month. “To the extent that there is even a slight drag, that helps bring down inflation and makes the job of the Federal Reserve easier,” he added in an interview this week.Others note that the effects of the deal reached last weekend will be positive for the economy in the months and years ahead - and not just because it averted default.
It is still possible that the deal reached last weekend could be watered down with Congressional backtracking, as happened with the 2011 deal.
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