Navigating the Impasse: The Debt Ceiling Crisis and Its Impact on the Dollar
The WSJ's Timiraos outlines potential actions from the Fed in the event of a debt-ceiling standoff, including buying Treasurys shunned by investors or allowing banks to pledge defaulted securities as collateral for loans. The Fed's ability to remove defaulted securities from the market is limited given the size of the Treasury market. However, if an agreement is delayed and it forces a shutdown, it is best to know what can be done. Regardless, the rating agencies would likely downgrade US debt, leading to increased risk in other markets including stocks.