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Will temporarily raising the debt ceiling help boost markets?
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On Friday, Republicans in the U.S. House of Representatives proposed raising the debt ceiling for three months. For now, at least, that means we’ll avoid the budget clash that was expected in a few weeks. But can a temporary raise in the debt ceiling help boost markets at all?
“I think it’s really good news that we’re not going to the brink of U.S. government default over fiscal policy,” says Julia Coronado, chief economist at BNP Paribas. “But as you know it doesn’t make the upcoming discussions over fiscal policy any less devisive or contentious.”
According to Coronado, that underlying uncertainity is holding the economy back.
“We’ve seen companies be excessively cautious in this recovery,” she says. “They’re focused on hoarding cash and protecting market share, rather than expanding investing and hiring. Hopefully as we resolve some of these fiscal uncertainties and continue to move forward, some of those uncertainties will ease and we’ll start to see companies a bit more growth oriented.”
However, Coronado said optimism in the housing market has turned for the positive.
“That’s what took us into the crisis, that’s what’s been holding us back to a large degree,” Coronado said. “The fact that we are turning a corner there is some of the best news we’ve had.”