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    U.K. Inflation Remains Stuck at 8.7 Percent

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    The rate, which had been expected to edge lower in May, shows that Britain’s cost-of-living crisis persists, and is likely to prompt the Bank of England to raise interest rates again.Britain’s inflation rate held steady in May, frustrating expectations that price increases would slow down, according to data released Wednesday, the day before the country’s central bank is widely expected to raise interest rates again.Consumer prices rose 8.7 percent from a year earlier, the same as in April, the Office for National Statistics said. Economists had forecast it would dip slightly. The data is likely to compound concerns that Britain’s cost-of-living crisis may intensify in the coming months as mortgage holders confront the burden of higher interest rates pushed through to tackle stubbornly strong inflation.The Bank of England on Thursday is expected to lift interest rates for a 13th consecutive time, by a quarter-point to 4.75 percent, the highest since early 2008.Last week, wage data showed pay growing faster than expected. On Wednesday, the statistics agency said core inflation, which excludes energy and food prices and is used to assess how deeply inflation is embedding in an economy, rose to 7.1 percent in the year through May, the fastest pace since 1992. Services inflation, an indicator that is closely watched by policymakers, climbed to 7.4 percent, from 6.9 percent in April.“The overwhelming impression is that this is a disappointing set of numbers that shows broad-based strength” in prices, Sandra Horsfield, an economist at Investec, wrote in an analyst note. “This is simply not good enough.”The rise in core inflation is “something that may cause some concern,” Grant Fitzner, the chief economist at the statistics agency, told the BBC.That’s because it has been pushed higher by price increases in services, such as at restaurants and hotels, much of it reflecting higher wage costs for companies, Mr. Fitzner said. “Services prices are quite sticky,” he said. “It can take longer for them to pick up but likewise longer for them to unwind as well.”This is leading to worries that overall inflation will be much slower to fall that it was to rise, he added.And that is what Britain is experiencing, as inflation data over the past few months has repeatedly defied expectations and stayed higher than predicted.Britain’s headline inflation rate has slowed from a peak of 11.1 percent in October, but it’s still uncomfortably high, especially compared with its international peers. In the United States, the Consumer Price Index rose 4 percent in May from the year before, and in the eurozone, inflation averaged 6.1 percent last month for the 20 countries that use the euro. The Federal Reserve has paused its interest rate increases, and traders are betting that the European Central Bank will raise rates just once or twice more; in Britain, though, investors are predicting the central bank will be forced to raise rates for longer to stamp out inflation.“We are in a situation now where markets are saying they’ve lost faith and that requires a big reaction from the bank,” said Andrew Goodwin, an economist at Oxford Economics. The central bank “needs to acknowledge that the game has changed,” he said, adding that he wouldn’t be surprised if the central bank raised rates by half a point on Thursday.Andrew Bailey, the governor of the Bank of England, said last week that policymakers still expected the inflation rate to come down, but “it’s taking a lot longer than expected.”Mr. Bailey’s predecessor, Mark Carney, said recently that Britain’s departure from the European Union was part of the reason Britain was suffering from stubbornly high inflation. There were other economic shocks at the same time, such as rising energy prices following Russia’s invasion of Ukraine, but Brexit is a “unique” part of the adjustment that will take years to resolve, he said.“We laid out in advance of Brexit that this will be a negative supply shock for a period of time and the consequence of that will be a weaker pound, higher inflation and weaker growth,” he told The Daily Telegraph last week.Traders are betting that the Bank of England’s interest rate could reach 6 percent by early next year. These expectations are shown through rising yields on government bonds, which now exceed the levels reached during Liz Truss’s brief but turbulent stint as prime minister last fall.In response, mortgage rates are rising too. Last weekend, the average rate for a two-year fixed-rate mortgage hit 6 percent for the first time this year.Last month, the central bank warned that many mortgage holders had not experienced the cost of higher interest rates yet. About 1.3 million households are expected to reach the end of their fixed-rate term by the end of the year, prompting a reset in the rate that applies to their loan. And the average mortgage holder in that group will see their monthly interest payments increase about 200 pounds ($255) a month, or £2,400 over the course of a year, if their mortgage rate rises 3 percentage points, which is what mortgage quotes suggested last month, the bank said.The additional financial strain follows months of higher prices, from energy bills to groceries. Food and nonalcoholic drink prices rose 18.3 percent in May from a year earlier, data showed on Wednesday, a slight slowdown from previous months when food inflation hit a 45-year high. The moderation in food and fuel prices was offset by rising prices at restaurants and hotels and for secondhand cars and live music events.“We know how much high inflation hurts families and businesses across the country,” Jeremy Hunt, the chancellor of the Exchequer, said in a statement on Wednesday, adding that the government’s plan to halve the rate of inflation would be the best way to keep costs and interest rates down.“We will not hesitate in our resolve to support the Bank of England as it seeks to squeeze inflation out of our economy,” he said.In January the government, led by Prime Minister Rishi Sunak, vowed to halve inflation by the end of the year, which would mean a rate of about 5 percent, amid waves of public and private sector strikes from workers frustrated by declining living standards.When that promise was made, it seemed almost guaranteed to succeed based on economic forecasts. But as the months have worn on, inflation has been harder to slow down than expected and that pledge is now at risk of being missed.Adding to the government’s challenges, separate data published on Wednesday estimated that Britain’s public sector debt exceeded 100 percent of gross domestic product for the first time since 1961, as the government paid out more money for energy support programs and social benefits to mitigate the cost-of-living crisis. More

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    U.K. Moves to Use Frozen Russian Assets to Help Ukraine Rebuild

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    As Russia’s ruinous attacks on Ukraine mount, Britain’s government is proposing legislation that would enable it to divert frozen Russian assets to the rebuilding of Ukraine and keep sanctions in place until Moscow pays compensation to its war-torn neighbor.The British announcement is in line with a decision last month at the annual Group of 7 meeting in Hiroshima, Japan, to freeze the estimated $300 billion worth of Russian assets held by banks and financial institutions in those countries — including Britain — “until Russia pays for the damage it has caused to Ukraine.”The issue of seized assets is highly contentious. While governments have the power to freeze assets, the European Central Bank has privately warned Brussels that confiscating Russian funds or giving the earned interest on those accounts to Ukraine could undermine confidence in the euro and shake financial stability, according to a report in The Financial Times. Investors might be reluctant to use euros as a reserve currency if they fear their funds could be grabbed.Ukraine’s reconstruction costs are estimated to top $411 billion, according to the most recent numbers from the World Bank, the European Commission and the United Nations. The ravaged landscape of the eastern city of Bakhmut, which President Volodymyr Zelensky of Ukraine laid out at the G7 meeting, is just one sign of the damage. “You have to understand that there is nothing,” Mr. Zelensky told reporters. “They’ve destroyed everything. There are no buildings.”The bank’s estimate was calculated before the vast devastation unleashed by the destruction of the Kakhovka dam in southern Ukraine this month.Calls to seize Russian assets and use them for Ukraine’s reconstruction have increased as the war has stretched well into its second year. Last week, the United States Senate introduced a bipartisan bill to confiscate Russian assets and use them for Ukraine’s reconstruction. And the issue is also expected to come up at a Ukraine Recovery Conference being held in London on Wednesday and Thursday.Since Russia began its full-scale invasion of Ukraine early last year, Britain has frozen roughly $23 billion in assets and imposed sanctions on 1,550 individuals. The government’s latest proposal will require people under sanctions to disclose their holdings in Britain.“Through our new measures today, we’re strengthening the U.K.’s sanctions approach,” James Cleverly, Britain’s foreign secretary, said in a statement on Monday accompanying the announcement, “affirming that the U.K. is prepared to use sanctions to ensure Russia pays to repair the country it has so recklessly attacked.” More

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    Federal Reserve’s June Meeting: What to Watch

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    Central bankers are expected to leave interest rates unchanged on Wednesday, but the decision is an unusual nail-biter. Also: Keep an eye on the economic forecasts.Federal Reserve officials will announce their June policy decision on Wednesday, and they are widely expected to hold steady after 10 straight interest rate increases — taking a breather to see how the economy is shaping up 15 months into their fight against rapid inflation.Prices have been increasing faster than the Fed would like for more than two years, but a report on Tuesday confirmed that the pace of overall inflation continues to cool. That doesn’t mean the Fed can declare victory: Once volatile food and fuel prices were stripped out, the data showed inflation remained stubbornly rapid.Investors are betting that Fed officials will respond to the mixed picture by skipping an increase this month, even as they signal that they might lift rates in July.Still, the outlook is very uncertain, and investors will be watching Wednesday’s Fed meeting closely for any hint at what could come next. Central bankers will release their rate decision and fresh economic forecasts at 2 p.m., followed by a news conference with Jerome H. Powell, the Fed chair, at 2:30 p.m. Here’s what to know about the decision.Interest rates are at their highest since 2007.Fed officials have raised interest rates sharply since March 2022, pushing them to just above 5 percent in the fastest series of rate increases since the 1980s.The speed of adjustment is relevant because it takes months or even years for the effects of interest rate changes to fully trickle through the economy.Given that, the economy is — most likely — feeling only part of the brunt of the Fed’s past moves. That increases the risk that the central bank could overdo it and slow growth by more than is strictly necessary to contain inflation if officials push forward without taking time to assess conditions.Overshooting would have serious ramifications: Restraining the economy too aggressively would very likely cost jobs, diminishing financial security for many Americans.But an incomplete policy response would also carry consequences. If rapid inflation drags on for years, consumers could come to see fast price increases as the norm, making them harder to stamp out without serious economic pain that causes higher unemployment down the road.Skipping does not mean stopping.If setting monetary policy is like a marathon, a pause now is like stopping for a water break — to stretch and take stock — rather than giving up on running altogether. Fed officials have been clear that while they may hit pause temporarily, they could lift rates again if needed.“A decision to hold our policy rate constant at a coming meeting should not be interpreted to mean that we have reached the peak rate for this cycle,” Philip Jefferson, a Fed governor who is President Biden’s pick to be the central bank’s next vice chair, said in a speech last month. Instead, Mr. Jefferson said, skipping would “allow the committee to see more data.”Tuesday’s inflation data probably kept officials on track to hold policy steady in June while teeing up a July increase, said Sarah Watt House, senior economist at Wells Fargo.“They are going to have to walk a very fine line,” she said. “The U.S. economy continues to carry some pretty formidable momentum.”Investors are on dot watch.Every three months, the Fed releases a set of projections — the “dot plot” — that shows where each official expects interest rates to land by the end of the next few years. (The predictions are anonymous and are demarcated by little blue spots, hence the name.)The dots come out alongside a set of projections for unemployment, inflation and growth. They will be released on Wednesday for the first time since March.Some economists are expecting the Fed to pencil in slightly higher growth for the economy, slightly higher core inflation, and a slightly lower unemployment rate by the end of 2023. One complication is that officials will have had barely any time to update their projections in the wake of Tuesday’s Consumer Price Index report. Officials had until Tuesday evening to change their forecasts, but that meant they had just hours to factor in the new figures.Investors are probably going to be most focused on how much higher interest rates are expected to rise this year. Many expect Fed officials to pencil in one more rate move — lifting the anticipated policy rate to a range of 5.25 percent to 5.5 percent at the end of 2023. But given the varied opinions on the central bank’s policy-setting committee, the predictions might be for even higher rates.All eyes are on Jerome Powell.Jerome H. Powell, the Fed chair, will give a news conference after the meeting. He may explain how central bankers are thinking about their path ahead for interest rates — and how officials will judge whether they have done enough to feel confident that inflation, now running at 4.4 percent by their preferred measure, is back on a path toward their 2 percent goal.“The main message will be: A pause does not necessarily mean the end of the rate hiking cycle,” said Michael Feroli, chief U.S. economist at J.P. Morgan. More

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    A $1 Trillion Borrowing Binge Looms After Debt Limit Standoff

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    The government has avoided default, but the effects of the debt-ceiling brinkmanship may still ripple across the economy.The United States narrowly avoided a default when President Biden signed legislation on Saturday that allowed the Treasury Department, which was perilously close to running out of cash, permission to borrow more money to pay the nation’s bills.Now, the Treasury is starting to build up its reserves and the coming borrowing binge could present complications that rattle the economy.The government is expected to borrow around $1 trillion by the end of September, according to estimates by multiple banks. That steady state of borrowing is set to pull cash from banks and other lenders into Treasury securities, draining money from the financial system and amplifying the pressure on already stressed regional lenders.To lure investors to lend such huge amounts to the government, the Treasury faces rising interest costs. Given how many other financial assets are tied to the rate on Treasuries, higher borrowing costs for the government also raise costs for banks, companies and other borrowers, and could create a similar effect to roughly one or two quarter-point rate increases from the Federal Reserve, analysts have warned.“The root cause is still very much the whole debt ceiling standoff,” said Gennadiy Goldberg, an interest rate strategist at TD Securities.Some policymakers have indicated that they may opt to take a break from raising rates when the central bank meets next week, in order to assess how policy has so far impacted the economy. The Treasury’s cash rebuild could undermine that decision, because it would push borrowing costs higher regardless.That could in turn exacerbate worries among investors and depositors that flared up in the spring over how higher interest rates had eroded the value of assets held at small and medium sized banks.The deluge of Treasury debt also amplifies the effects of another Fed priority: the shrinking of its balance sheet. The Fed has curtailed the number of new Treasuries and other debt that it buys, slowly letting old debt roll-off and already leaving private investors with more debt to digest.“The potential hit to the economy once Treasury goes to market selling that much debt could be extraordinary,” said Christopher Campbell, who served as assistant Treasury secretary for financial institutions from 2017 to 2018. “It’s difficult to imagine Treasury going out and selling what could be $1 trillion of bonds and not have that have an impact on borrowing costs.”The cash balance at the Treasury Department’s general account fell below $40 billion last week as lawmakers raced to reach an agreement to increase the nation’s borrowing cap. Mr. Biden on Saturday signed legislation that suspended the $31.4 trillion debt limit until January 2025.For months, Treasury Secretary Janet L. Yellen had been using accounting maneuvers known as extraordinary measures to delay a default. Those included suspending new investments in retirement funds for postal workers and civil servants.Restoring those investments is essentially a simple accounting fix, but refilling the government’s cash coffers is more complicated. The Treasury Department said on Wednesday that it hoped to borrow enough to rebuild its cash account to $425 billion by the end of June. It will need to borrow much more than that to account for planned spending, analysts said.“The supply floodgates are now open,” said Mark Cabana, an interest rate strategist at Bank of America.A Treasury Department spokesman said that when making decisions on issuing debt, the department carefully considered investor demand and market capacity. In April, Treasury officials started surveying key market players about how much they thought the market could absorb after the debt-limit standoff was resolved. The Federal Reserve Bank of New York this month asked large banks for their estimates of what they expected to happen to bank reserves and borrowing from certain Fed facilities in the next months.The spokesman added that the department had managed similar situations before. Notably, after a bout of debt-limit wrangling in 2019, the Treasury Department rebuilt its cash pile over the summer, contributing to factors that drained reserves from the banking system and upended the market’s plumbing, prompting the Fed to intervene to stave off a worse crisis.One of the things the Fed did was establish a program for repurchase agreements, a form of financing with Treasury debt posted as collateral. That backstop could provide a safety net to banks short on cash from lending to the government, though its use was widely seen in the industry as a last resort.A similar but opposite program, which doles out Treasury collateral in exchange for cash, now holds over $2 trillion, mostly from money market funds that have struggled to find attractive, safe investments. This is viewed by some analysts as money on the sidelines that could flow into the Treasury’s account as it offers more attractive interest rates on its debt, reducing the impact of the borrowing spree.But the mechanism by which the government sells its debt, debiting bank reserves held at the Fed in exchange for the new bills and bonds, could still test the resilience of some smaller institutions. As their reserves decline, some banks may find themselves short on cash, while investors and others may not be willing to lend to institutions they see as troubled, given recent worries about some corners of the industry.That could leave some banks reliant on another Fed facility, set up at the height of this year’s banking turmoil, to provide emergency funding to deposit taking institutions at relatively high cost.“You may see one or two or three banks caught unprepared and suffer the consequences, starting a daisy chain of fear that can permeate through the system and create trouble,” Mr. Goldberg of TD Securities said. More

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    World Bank Projects Weak Global Growth Amid Rising Interest Rates

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    A new report projects that economic growth will slow this year and remain weak in 2024.The World Bank said on Tuesday that the global economy remained in a “precarious state” and warned of sluggish growth this year and next as rising interest rates slow consumer spending and business investment, and threaten the stability of the financial system.The bank’s tepid forecasts in its latest Global Economic Prospects report highlight the predicament that global policymakers face as they try to corral stubborn inflation by raising interest rates while grappling with the aftermath of the pandemic and continuing supply chain disruptions stemming from the war in Ukraine.The World Bank projected that global growth would slow to 2.1 percent this year from 3.1 percent in 2022. That is slightly stronger than its forecast of 1.7 percent in January, but in 2024 output is now expected to rise to 2.4 percent, weaker than the bank’s previous prediction of 2.7 percent.“Rays of sunshine in the global economy we saw earlier in the year have been fading, and gray days likely lie ahead,” said Ayhan Kose, deputy chief economist at the World Bank Group.Mr. Kose said that the world economy was experiencing a “sharp, synchronized global slowdown” and that 65 percent of countries would experience slower growth this year than last. A decade of poor fiscal management in low-income countries that relied on borrowed money is compounding the problem. According to the World Bank, 14 of 28 low-income countries are in debt distress or at a high risk of debt distress.Optimism about an economic rebound this year has been dampened by recent stress in the banking sectors in the United States and Europe, which resulted in the biggest bank failures since the 2008 financial crisis. Concerns about the health of the banking industry have prompted many lenders to pull back on providing credit to businesses and individuals, a phenomenon that the World Bank said was likely to further weigh down growth.The bank also warned that rising borrowing costs in rich countries — including the United States, where overnight interest rates have topped 5 percent for the first time in 15 years — posed an additional headwind for the world’s poorest economies.The most vulnerable economies, the report warned, are facing greater risk of financial crises as a result of rising rates. Higher interest rates make it more expensive for developing countries to service their loan payments and, if their currencies depreciate, to import food.In addition to the risks posed by rising interest rates, the pandemic and the conflict in Ukraine have combined to reverse decades of progress in global poverty reduction. The World Bank estimated on Tuesday that in 2024, incomes in the poorest countries would be 6 percent lower than in 2019.“Emerging market and developing economies today are struggling just to cope — deprived of the wherewithal to create jobs and deliver essential services to their most vulnerable citizens,” the report said.The World Bank sees widespread slowdowns in advanced economies, too. In the United States, it projects 1.1 percent growth this year and 0.8 percent in 2024.China is a notable exception to that trend, and the reopening of its economy after years of strict Covid-19 lockdowns is propping up global growth. The bank projects that the Chinese economy will grow 5.6 percent this year and 4.6 percent next year.Inflation is expected to continue to moderate this year, but the World Bank expects that prices will remain above central bank targets in many countries throughout 2024. More

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    New World Bank President Ajay Banga Leads at a Pivotal Moment

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    The incoming president will be under pressure to juggle the global institution’s ambitions to combat climate change and fight poverty.Ajay Banga officially became the 14th president of the World Bank on Friday and urged staff to join him in developing a “new playbook” for a global institution whose relevance has come into question in recent years.The ascension of Mr. Banga to be the next leader of the bank comes at a pivotal moment in its 77-year history. The global pandemic reversed decades of progress in poverty reduction, Russia’s war in Ukraine continues to be a threat to economic stability and the World Bank is under new pressure to become a more ambitious player in the fight against climate change.“Making good on our ambition will require us to evolve to maximize resources and write a new playbook, to think creatively, take informed risks and forge new partnerships with civil society and multilateral institutions,” Mr. Banga wrote in a note to staff that was viewed by The New York Times.Mr. Banga was nominated by President Biden in February after the resignation of David Malpass, the outgoing World Bank president who had been selected by former President Donald J. Trump. The World Bank’s executive board approved Mr. Banga in May following an extensive listening tour that included visits to eight countries and dozens of meetings with government officials around the world.In his message to staff, Mr. Banga defined the bank’s mission as aspiring to “create a world free from poverty on a livable planet.”It is the second part of that mission by which Mr. Banga will be likely be judged.Mr. Malpass left the job a year early after failing to sufficiently demonstrate his commitment to combating global warming amid a renewed emphasis from the Biden administration broadening the bank’s focus on the environment.However, Mr. Banga, a former chief executive of Mastercard, does not bring extensive climate credentials to the job and will be under pressure to demonstrate progress on the bank’s environmental agenda. He has described the tasks of dealing with climate change and poverty as intertwined.“The World Bank’s challenge is clear: It must pursue both climate adaptation and mitigation; it must reach out to lower-income countries without turning its back on middle-income countries; it must think globally but recognize national and regional needs; it must embrace risk but do so prudently,” Mr. Banga wrote in a statement to World Bank’s executive board that accompanied his memo to staff.Activists protest during meetings of the International Monetary Fund and World Bank in April.Yuri Gripas for The New York TimesClimate activists plan to appear outside the World Bank on Friday and attempt to hand postcards to staff with demands that they want Mr. Banga to heed during his first 100 days on the job. They continue to be frustrated that the World Bank finances coal, oil and gas projects despite its pledges to prioritize clean energy projects.Mr. Banga is expected to use his expertise to amplify the resources of the World Bank and build new partnerships between the private and public sectors. The former finance executive added in his memo that accomplishing the World Bank’s many goals will require an annual global investment of trillions of dollars.Mr. Banga will also face a difficult diplomatic task as he seeks to satisfy the climate ambitions of the United States and Europe while facing skepticism from some developing countries. He will also confront the delicate task of urging China, a major World Bank shareholder and creditor, to allow poor countries that have borrowed huge sums from Beijing to restructure their debts.The World Bank president is traditionally chosen by the United States; the managing director of the International Monetary Fund is selected by the European Union.Mr. Banga met on Thursday with Treasury Secretary Janet L. Yellen. They discussed ways to refine how the bank operates and make it more agile and responsive, according to a summary of their conversation released by the Treasury Department. More

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    Debt Ceiling Crisis: How a Default Could Unfold

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    Here’s a look at what markets are expecting and planning for, and how a default might happen.The United States is inching closer to calamity, as lawmakers continue to spar over what it will take to raise the country’s $31.4 trillion debt limit.That has raised questions about what will happen if the United States does not raise its borrowing cap in time to avoid defaulting on its debt, along with how key players are preparing for that scenario and what would actually happen should the Treasury Department fail to repay its lenders.Such a situation would be unprecedented, so it’s difficult to say with certainty how it would play out. But it’s not the first time investors and policymakers have had to contemplate “what if?” and they’ve been busy updating their plans for how they think things may play out this time.While negotiators appear to be moving toward an agreement, time is short. There is no certainty that the debt limit will be lifted before June 5, when the Treasury now estimates the government will run out of cash to pay all of its bills on time, a moment known as the “X-date.”“We’ve got to be in the closing hours because of the timeline,” said Representative Patrick McHenry, a North Carolina Republican who is involved in the talks. “I don’t know if it’s in the next day or two or three, but it’s got to come together.”Big questions remain, including what could happen in the markets, how the government is planning for default and what happens if the United States runs out of cash. Here’s a look at how things could unfold.Before the X-DateFinancial markets have become more jittery as the United States moves closer to the X-date. While exuberance over the profit-boosting expectations of artificial intelligence has helped the stock market recover, fears about the debt limit persist. On Friday, the S&P 500 rose 1.3 percent, a modest gain of 0.3 percent for the week.This week, Fitch Ratings said it was placing the nation’s top AAA credit rating on review for a possible downgrade. DBRS Morningstar, another rating firm, did the same on Thursday.For now, the Treasury is still selling debt and making payments to its lenders.That has helped mollify some concerns that the Treasury won’t be able to repay debt coming due in full, as opposed to just an interest payment. That’s because the government has a regular schedule of new Treasury auctions where it sells bonds to raise fresh cash. The auctions are scheduled in a way so that the Treasury receives its new borrowed cash at the same time that it pays off its old debts.That allows the Treasury to avoid adding much to its outstanding $31.4 trillion debt load — something it can’t do right now since it enacted extraordinary measures after coming within a whisker of the debt limit on Jan. 19. And it should give the Treasury the cash it needs to avoid any disruption to payments, at least for now.This week, for example, the government sold two-year, five-year and seven-year bonds. However, that debt doesn’t “settle” — meaning the cash is delivered to the Treasury and the securities delivered to the buyers at the auction — until May 31, coinciding with three other securities coming due.More precisely, the new cash being borrowed is slightly larger than the amount coming due, with the tricky act of balancing all of the money coming in and out pointing to the Treasury’s challenge in the days and weeks ahead.When all the payments are tallied, the government ends up with a little over $20 billion of extra cash, according TD Securities.Some of that could go to the $12 billion of interest payments that the Treasury also has to pay that day. But as time goes on, and the debt limit becomes harder to avoid, the Treasury may have to postpone any incremental fund-raising, as it did during the debt limit standoff in 2015.After the X-Date, Before DefaultThe U.S. Treasury pays its debts through a federal payments system called Fedwire. Big banks hold accounts at Fedwire, and the Treasury credits those accounts with payments on its debt. These banks then pass the payments through the market’s plumbing and via clearing houses, like the Fixed Income Clearing Corporation, with the cash eventually landing in the accounts of holders from domestic retirees to foreign central banks.The Treasury could try to push off default by extending the maturity of debt coming due. Because of the way Fedwire is set up, in the unlikely event that the Treasury chooses to push out the maturity of its debt it will need to do so before 10 p.m. at the latest on the day before the debt matures, according to contingency plans laid out by the trade group Securities Industry and Financial Markets Association, or SIFMA. The group expects that if this is done, the maturity will be extended for only one day at a time.Investors are more nervous that should the government exhaust its available cash, it could miss an interest payment on its other debt. The first big test of that will come on June 15, when interest payments on notes and bonds with an original maturity of more than a year come due.Moody’s, the rating agency, has said it is most concerned about June 15 as the possible day the government could default. However, it may be helped by corporate taxes flowing into its coffers next month.The Treasury can’t delay an interest payment without default, according to SIFMA, but it could notify Fedwire by 7:30 a.m. that the payment will not be ready for the morning. It would then have until 4:30 p.m. to make the payment and avoid default.If a default is feared, SIFMA — alongside representatives from Fedwire, the banks and other industry players — has plans in place to convene up to two calls the day before a default could occur and three further calls on the day a payment is due, with each call following a similar script to update, assess and plan for what could unfold.“On the settlement, infrastructure and plumbing, I think we have a good idea of what could happen,” said Rob Toomey, head of capital markets at SIFMA. “It’s about the best we can do. When it comes to the long-term consequences, we don’t know. What we are trying to do is minimize disruption in what will be a disruptive situation.”Default and BeyondOne big question is how the United States will determine if it has actually defaulted on its debt.There are two main ways the Treasury could default: missing an interest payment on its debt, or not repaying its borrowings when the full amount becomes due.That has prompted speculation that the Treasury Department could prioritize payments to bondholders ahead of other bills. If bondholders are paid but others are not, ratings agencies are likely to rule that the United States has dodged default.But Treasury Secretary Janet L. Yellen has suggested that any missed payment will essentially amount to a default.Shai Akabas, director of economic policy at the Bipartisan Policy Center, said an early warning sign that a default was coming could arrive in the form of a failed Treasury auction. The Treasury Department will also be closely tracking its expenditures and incoming tax revenue to forecast when a missed payment could happen.At that point, Mr. Akabas said, Ms. Yellen is likely to issue a warning with the specific timing of when she predicts the United States will not be able to make all of its payments on time and announce the contingency plans she intends to pursue.For investors, they will also receive updates through industry groups tracking the key deadlines for the Treasury to notify Fedwire that it will not make a scheduled payment.A default would then set off a cascade of potential problems.Rating firms have said a missed payment would merit a downgrade of America’s debt — and Moody’s has said it will not restore its Aaa rating until the debt ceiling was no longer subject to political brinkmanship.International leaders have questioned whether the world should continue to tolerate repeated debt-ceiling crises given the integral role the United States plays in the global economy. Central bankers, politicians and economists have warned that a default would most likely tip America into a recession, leading to waves of second order effects from corporate bankruptcies to rising unemployment.But those are just some of the risks known to be lurking.“All of this is uncharted waters,” Mr. Akabas said. “There’s no playbook to go by.”Luke Broadwater More

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    Fed Officials Were Split Over June Rate Pause, Minutes Show

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    In the Federal Reserve’s last meeting, “several” participants thought rates may have moved high enough to get inflation under control.Federal Reserve officials were unanimous in their decision to raise interest rates earlier this month, but were conflicted over whether additional increases would be necessary to bring inflation under control, according to minutes from the Fed’s last meeting released on Wednesday.The Fed voted to raise interest rates by a quarter-point on May 3, to a range of 5 to 5.25 percent, the 10th straight increase since the central bank started its campaign to rein in inflation last year. Although officials left the door open to further rate increases, the minutes make clear that “several” policymakers were leaning toward a pause.“Several participants noted that if the economy evolved along the lines of their current outlooks, then further policy firming after this meeting may not be necessary,” the minutes said.Still, some officials believed “additional policy firming would likely be warranted at future meetings” since progress on bringing inflation back to the central bank’s 2 percent target could continue to be “unacceptably slow.”Policymakers believed that the Fed’s moves over the past year had significantly contributed to tighter financial conditions, and they noted that labor market conditions were starting to ease. But they agreed that the labor market was still too hot, given the strong gains in job growth and an unemployment rate near historically low levels.Officials also agreed that inflation was “unacceptably high.” Although price increases have shown signs of moderating in recent months, declines were slower than officials expected, and officials were concerned that consumer spending could remain strong and keep inflation elevated. Some noted, however, that tighter credit conditions could slow household spending and dampen business investment.Fed officials believed the U.S. banking system was “sound and resilient” after the collapses of Silicon Valley Bank and Signature Bank this year led to turbulence in the banking sector. Although they noted that banks might be pulling back on lending, policymakers said it was too soon to tell how big of an impact credit tightening might have on the overall economy.One source of concern for policymakers was brinkmanship over the nation’s debt limit, which caps how much money the United States can borrow. If the cap is not raised by June 1, the Treasury Department could be unable to pay all of its bills in a timely manner, resulting in a default. Many officials said it was “essential that the debt limit be raised in a timely manner” to avoid the risk of severely damaging the economy and rattling financial markets.The central bank’s next move remains uncertain, with policymakers continuing to leave their options open ahead of their June meeting.“Whether we should hike or skip at the June meeting will depend on how the data come in over the next three weeks,” Christopher Waller, a Federal Reserve governor, said in a speech on Wednesday.The president of the Minneapolis Fed, Neel Kashkari, said in an interview with The Wall Street Journal last week that he could support holding rates steady at the June 13-14 meeting to give policymakers more time to assess how the economy is shaping up.“I’m open to the idea that we can move a little bit more slowly from here,” he said.Officials have reiterated that they will continue to monitor incoming data before reaching a decision. On Friday, the Commerce Department will release a fresh reading of the Personal Consumption Expenditures index, the Fed’s preferred gauge of inflation. Early next month, the federal government will also release new data on job growth in May. More