Negotiations between Democrats and Republicans continue over a possible deal that will raise the debt ceiling and reduce the swelling deficit in the United States, where president Obama seems to have eased his stance on raising the debt ceiling temporarily to avoid a default by the United States, since Obama demanded that any deal to raise the debt ceiling should also include a long term plan to reduce the deficit.
Nonetheless, as an August 2, deadline draws near, Democrats and Republicans are yet to reach a compromise deal, where Democrats are calling for tax increase, while Republicans are calling for deep spending cuts, and despite news that a compromise plan is being prepared by a bipartisan Gang of Six senators that includes a $3.75 trillion deficit reduction, yet no final agreement has been reached, and the White House is yet to provide blessing for the proposal.
Meanwhile, the Federal Reserve Bank seems to be preparing a contingency plan in order to deal with a possible default, where Philadelphia Federal Reserve Chairman Charles Plosser announced in an interview on Wednesday that the Fed is working with the U.S. Treasury over possible measures to deal with a default.
Plosser also added in the interview that he sees economic growth during the second half of this year between 3.0% and 3.50%, while Plosser, a well known Hawk among the Fed, signaled his concerns from upside risks to inflation, where Plosser believes that the Fed could even raise rates later this year if inflation continues to rise.
However, Plosser though, was somewhat flexible when it came to rising unemployment rates, although Plosser signaled he expects unemployment to drop in the second half of this year. Plosser didn't exclude further monetary policy loosening if conditions worsened further, as Plosser highlighted that another financial meltdown resulting from the European debt crisis could persuade him to change his hawkish stance.