As usual, the United States periodically re-enacts the psychodrama of the shutdown, if not the debt ceiling. This time, Congress narrowly avoided a federal government shutdown by adopting an emergency measure allowing funding to continue for 45 days. For the time being, aid to the Ukraine is the main beneficiary of this measure, although it will be the subject of a separate bill. See you in mid-November for the rest of the episode. In concrete terms, this last-minute solution does not solve the fundamental problem, as Republicans and Democrats still have to agree on the future state budget. This will be all the more difficult given that Kevin McCarthy, Speaker of the House of Representatives, is in an ejector's seat. He was narrowly elected to the House with a very narrow Republican majority, thanks to the vote of Trumpist members, and it was he who initiated this emergency measure thanks to the support of the Democrats, while the most right-wing fringe of the Republicans was vehemently opposed to it.
Schizophrenic as it may seem, this news doesn't seem to be much of a relief for the markets. Indeed, while a shutdown would have had a negative impact on US growth (of the order of 0.2 GDP points per week, according to Goldman Sachs analysts), which could have eased the pressure on rates a little, this emergency measure maintains short-term growth prospects and thus reinforces the idea of another Fed rate hike. The constant reintegration of the idea of a US central bank that would keep rates durably higher, and the resilience of the economy, have thus sent US rates to new highs. This movement, coupled with the dollar's appreciation, had a negative impact on virtually all asset classes, which all ended the past week in the red. However, macroeconomic data continued to point to a slowdown in the US economy. The Conference Board's consumer confidence index for September fell for the second month in a row. In addition, PCE inflation data, the Fed's benchmark, confirms the easing of tensions, with core PCE inflation falling below 4% for the first time since September 2021, although the path to the 2% target still seems a long way off.
We continue to believe that the US economy will stall more than is currently anticipated by the consensus. While macroeconomic data is exceptionally resilient in the face of rising rates, upside surprises are set to diminish, and there are a number of points of attention that could accelerate the downturn: the auto strike, the resumption of student loan payments, the approval of the budget... All elements that should, in our view, enable the Fed to keep rates