U.S. Debt Ceiling Fight, Taper Talk, Mexico Rate Hike: Eco Day

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Welcome to Thursday, Americas. Here’s the latest news and analysis from Bloomberg Economics to help you start the day:

• President Joe Biden’s $4.1 trillion economic agenda faces a difficult path through Congress, with the final passage of the measures likely to coincide with a debt ceiling debate next month

  • For House Speaker Nancy Pelosi and Senate Majority Leader Chuck Schumer, the problem is going to be keeping all Democrats on board, with only a couple of defections enough to derail the entire plan
  • For his part, Biden said the massive spending plans would not be inflationary, saying those who worry about the rising cost of living should support the measures

• This morning’s weekly initial jobless claims number is expected to show a small improvement to 375,000

  • It comes on the back of generally positive news for the labor market in recent days, with payrolls for July coming in better than expected and job openings hitting a record above 10 million
  • The improving outlook is leading to more Federal Reserve policy makers saying it is getting closer to the time to normalize the monetary policy stance
• Janet Yellen is weighing a trip to China in the coming months that would be her first as U.S. Treasury secretary, people familiar with the matter said
• Bloomberg Economics’ David Wilcox expects July’s 5.4% reading on the CPI to translate into 4.1% inflation on the Fed’s preferred gauge, the PCE price index
  • Normally, a level that high would have the Fed pushing its emergency Volcker button. One reason they won’t be doing that anytime soon -- persistently high inflation would require a big shift in inflation expectations
  • So far, despite the extreme turbulence of the Covid-era, that doesn’t seem to be happening
• Mexico and Peru are considering raising interest rates on Thursday as policy makers across emerging markets try to head off faster inflation in economies rebounding from the pandemic
• The blow to China’s economy from the delta variant outbreak deepened in the past two weeks, according to Bloomberg Economics
  • Downward pressure on the Chinese economy means that targeted fiscal and monetary support is likely to be stepped up
• China partly shut the world’s third-busiest container port after a worker became infected with Covid, threatening to further disrupt global trade
  • Meantime, China’s central bank is facing mounting calls to cut interest rates

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