U.S. stocks closed lower on Wednesday as Congress geared up for a crucial vote on raising the federal debt ceiling. The House of Representatives is expected to pass a bill to increase the debt limit, which would then move to the Senate for further deliberation. Investors were unsettled by robust labor market data, as concerns over potential interest rate hikes by the Federal Reserve in June loomed.
The passage of the bill in the House is seen as a crucial step to prevent a disruptive default that could occur next week without congressional approval. While there is a general expectation of approval, President Joe Biden expressed confidence that the debt ceiling bill would be on his desk by next Monday. Market sentiment was partly supported by the bond market’s positive response to fiscal discipline and the equity market’s relief that it would not hinder economic growth.
However, concerns remain due to high interest rates, a slowing economy, and the need for further decline in inflation. The unexpected rise in U.S. job openings reported by the Labor Department for April indicated ongoing strength in the labor market but also raised concerns about potential wage pressure and inflation. Initially, futures traders anticipated a rate hike, but the likelihood decreased following comments from Fed officials hinting at a possible pause in rate hikes.
The upcoming release of the May unemployment report will be closely watched as it could have an impact on the decision regarding rate hikes. Some Fed officials have expressed the need to gather more data before making a decision, while others have acknowledged the possibility of a pause. The economic data and market dynamics will play a significant role in shaping the Federal Reserve’s approach in the coming months.