Tariff and Debt Ceiling Deadlines
We are a week out from the imposition of the tariffs and for those who have not negotiated their respective levels to a conclusion. The rates spelled out in delivered letters will govern what shapes the future. The retail sector is showing some strength perhaps in part because tariffs are looming. Go get those Italian shoes for the wedding before it is too late.
Congress is gearing up to head home in due course. The budget and the recissions are done. But there is still the matter of the debt ceiling. The Treasury has been managing the cash flow. There has been a lot of discussion about the level and the cost of the federal debt. Much of the outstanding debt will need to be refinanced in the next few years. Lower rates clearly would assist but that goal is outside of the Fed’s dual mandate.
The equity markets are continuing to make new daily highs. Given the momentum that is continuing, it is difficult to see whether there will be a shift to fixed income. Rates have become more attractive with the long Treasury approaching the 5% mark. This level will entice some. The municipal market supply continues to stay at a high level especially for the end of July. There may be some lightening up of supply in August, although the signs are not there yet. Long municipal rates are right near the highs for the year. If the supply remains on trend, rates will take time to descend assuming the Fed takes no action at the upcoming meeting.
The recent settlement Columbia entered into with the federal government at $200 million may be viewed a number of ways. As an alumnus, I am disappointed it has come to this conclusion. However, as a practical matter giving up the bulk of research grants to pursue another path appeared to be too high a price to pay. The truth is the greater goal is to get this matter settled. There will be constructive steps taken to ensure student safety. My sincere hope is that when students return a more peaceful dialogue may take place. In the neighborhood we look forward to the departure of the camera crews.
What this settlement will mean for other institutions is hard to say. Each situation has its own set of factors. However, the precedent has been set that the federal administration prefers some kind of financial penalty with agreement on changes that have to be made going forward. Bond ratings should not suffer as long as the settlement amounts do not grow too large.
Returning to the mayoral election here in New York City, the ramp up of the rhetoric is commencing. However, candidate Mamdani is on vacation so some of the concepts he has introduced continue to be considered critically. We are starting to hear more from the Mayor and Andrew Cuomo who have very different visions for the way forward for the City. As I have said before, free buses may work. Many board the buses now without paying. A lone driver has a real challenge trying to instill compliance in paying the fare. All the other proposals deserve a vigorous debate. Rating agencies will take their time to assess what proposals if any have staying power. Most observers of the scene have already stated that Governor Hochul is not interested in raising the personal income tax even if it only applies to the highest income taxpayers.
The Permanent School Fund bond program has been incredibly beneficial to the schools, taxpayers, and investors in Texas. I am not privy to where the political momentum is derived from to change the program after September 1. If someone can calculate the savings due to the program since inception it would be an impressive factoid that may make a difference,
Hurricane season has started and it is still not quite clear what the role of FEMA will be going forward. Natural hazards do not have a specific season but are year round. Providing aid to Texas and not to Maryland does not appear to be fair on its face. If governments will have to dig deep for funds to ameliorate events, fund balances and reserves may be at risk. Monitoring going forward must be a deliberate exercise.
John Hallacy
John Hallacy Consulting LLC
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