“Once the debt crisis is behind us, the spotlight is likely to return to the Federal Reserve,” Daleep Singh, global chief economist at PGIM Fixed Income, said in an interview. The Fed has been raising interest rates since March 2022 in its battle against inflation and needs to decide what to do at its next meeting in June. “The Fed faces a trifecta of risks,” he said. These include:

• The potential economic drag from the tighter fiscal policy House Republicans are demanding of President Biden as a prerequisite for a debt ceiling increase.

• The lagged effects of the Fed’s tightening monetary policy. Is a recession coming? Does inflation expire? Should the Fed raise rates further, keep them where they are, or start cutting them to avoid a recession?

• The possibility of new bursts in the banking system. Regional banks like Silicon Valley Bank and Signature Bank have been bailed out by regulators, First Republic was acquired by JPMorgan Chase, and banks like PacWest, Western Alliance, Comerica and Zions Bancorp have come under pressure. Bank runs and long-term investment losses, compounded by the Fed’s policy of raising interest rates, could resume if the Fed keeps rates at current levels or raises them further.

Interestingly, the debt ceiling crisis provided temporary relief for many of the country’s banks, Moody’s Investor Service economists found in a recent study. “The debt ceiling standoff has been a tailwind for banks,” Jill Cetina, Moody’s associate managing director, said in an interview.

But once the debt ceiling is removed and the Treasury starts raising money by selling large amounts of bonds, those purchases by investors on the open market will drain the banks of money. “This may not be what you would expect, but the resolution of the debt ceiling crisis will be a hurdle for banks,” he said.

Global tensions remain high. Russia’s war in the Ukraine continues, at staggering cost. Russia and China, its supporter if not formal ally, are both nuclear powers, and with NATO countries providing increasingly lethal military aid to Ukraine, the threat of a tragic escalation of the conflict cannot be entirely ruled out. From a purely economic point of view, although energy prices have fallen sharply from their peaks at the start of the Ukrainian war, the possibility of further unexpected shocks remains. Relations between the United States and China are tense, and global trade relations have been fraying.

On top of that, while the emergency phase of the pandemic has ended in the United States and many other countries, the coronavirus is still with us and continues to exact a heavy toll in death and suffering. In the week of May 4 alone, 840 people died from the virus in the United States, bringing the ever-rising death count to 1,133,684. Tens of thousands of people suffer from the long-term effects of the disease.

In an economic sense, the effects of Covid-19 are still with us as well. The expansionary fiscal and monetary policies enacted to combat the Covid-induced recession in 2020 were surprisingly successful in restoring economic growth. But the bout of inflation that has swept global economies in the past two years is also partly due to those policies and to the supply shocks generated by the virus. Even if the coronavirus doesn’t break out again in the United States, the economy and markets are still readjusting, putting the Federal Reserve in a quandary, and countries like Porcelain continue to experience severe outbreaks.