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MAY 31, 2023

REGULATORY CLARITY FOR CRYPTO

Coinbase’s CEO, Brian Armstrong, has asked U.S. regulators to clarify their stance on cryptocurrency to avoid other countries like China taking the lead. Concerns about regulatory clarity began after the Securities and Exchange Commission (SEC) issued Coinbase with a Wells Notice over its staking service earlier this year. Armstrong argues that it is essential for the U.S. to build the crypto industry in America for national security and technology leadership. This view is shared among other crypto companies such as Ripple.

DEBT CEILING DEAL UPDATE

The bill to raise the debt ceiling has moved one step closer to approval, passing its first major test in the House Rules Committee. Seven out of nine Republicans voted for the bill, advancing it to the House floor, where a vote is scheduled for Wednesday night. Moreover, the Congressional Budget Office (CBO) assessed the effect of the bill on the federal debt and deficit, and indicated that if the legislation was carried out as planned, budget deficits would decrease by roughly $1.5 trillion over the next ten years.

POSSIBLE INTEREST RATE AND TAX HIKES

According to former Treasury Secretary, Lawrence Summers, the U.S. could see short term rises in interest rates, followed by significant increases in taxes in the long term. This can be attributed to the current high underlying inflation rate, which sits at around 4.5% to 5%—double the Federal Reserve’s target of 2%. Summers believes that the Fed will have to raise the federal funds rate further to address the inflation problem, and warned that substantial increases in taxes may be necessary in the future to combat the U.S. government’s growing debt.

DECLINING MORTGAGE DEMAND

Mortgage demand has decreased to the lowest level since February after mortgage rates rose last week due to an increase in positive economic data. The average interest rate for a 30-year fixed-rate mortgage rose to 6.91%, leading to a decline in mortgage refinance and home purchase applications. The shortage of homes available on the market has also limited the purchase volume. Furthermore, higher mortgage rates make it less likely for homeowners to sell their homes, which has reduced inventory levels further.

INTERNATIONAL NEWS

The European Central Bank (ECB) has published a report warning that recent high interest rates implemented to fight inflation could damage financial stability. Property markets are particularly vulnerable, with house prices already falling. Despite this, the ECB indicated that the trend of increasing interest rates may persist.
On a positive note, the report highlighted the banking sector’s resilience, which has remained strong despite the turbulence it has faced. The ECB believes this strength should be sustained by maintaining capital and liquidity buffers, and by discouraging banks from increasing their payout ratios.

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