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U.S. Lawmakers Found A Temporary Deal But Challenges Persist

Christophe Barraud

 

President Barack Obama signed into law a measure ending the 16-day U.S. government shutdown and extending the nation’s borrowing authority until early next year, the White House said today in a statement:

 

From Bloomberg:

 

The measure was passed by wide margins in the House and Senate last night, ending a weeks-long fiscal stalemate between the Obama administration and Republicans in Congress. The bill passed on an 81-18 vote in the Democratic-led Senate, followed by a 285-144 vote in the Republican-controlled House.

 

Concerning the consequences of the shutdown, S&P estimates that it will reduce the Q4 output by $24billion. In parallel, A Pew Research Center poll showed that the longer the shutdown went on, the more Americans blamed Republicans over Obama and other Democrats.

 

From Bloomberg:

 

The partial government shutdown that resulted from the deadlock has taken at least $24 billion out of the U.S. economy so far, reducing fourth-quarter growth by at least 0.6 percentage points, according Standard & Poor’s…
 
A Pew Research Center poll showed that the longer the shutdown went on, the more Americans blamed Republicans over Obama and other Democrats. Seventy-two percent of Americans surveyed Oct. 9-13 disapproved of the job Republican leaders in Congress were doing, while 51 percent disapproved of Obama’s performance. Lawmakers have more than a year before they face voters again in midterm elections.

 

The last-minute agreement doesn’t eliminate the core conflict in Congress over fiscal policy, and the temporary funding extension for the government expires on Jan. 15. The debt ceiling increase expires Feb. 7. As a consequence, the two parties will fight again in three months (continuing resolution, debt ceiling and 2014 budget).

 
My view is that this agreement is a good news because it will reduce uncertainty in the short term and will boost consumer confidence (after reaching a nine-month low) as holidays approach. However, this agreement is only temporary and therefore companies’ visibility should remain limited until Q1 2014, limiting CAPEX and hiring.

Boehner Will Propose Short-Term Bill to Avert Government Shutdown but Will Maintain “Sequester”

As everybody knows, Republicans and Democrats had been expected to clash in September over funding for federal operations, ahead of the Oct. 1 (start of the new fiscal year). In a context where public finances are improving significantly, Democrats seem ready to avoid budget cuts or even increase spending in some areas while Republicans still want to limit expenses.

 

On a conference call Thursday evening with GOP lawmakers, House Speaker John A. Boehner said it was his “intent to move quickly” when lawmakers return to Washington in September to propose a short-term spending bill that keeps the government running for 60 to 75 days and therefore avert a “government shutdown”. In this context, lawmakers could defer the toughest budget issues to later in the fall, when lawmakers should face a deadline to raise the debt ceiling, according to CBO estimates. Yet, this budget bill will maintain sharp automatic spending cuts ($109 billion) which should entry into force from October 1st.

 

More from Washington Post:

 

House Speaker John A. Boehner said Thursday that he plans to avert a government shutdown at the end of September by passing a “short-term” budget bill that maintains sharp automatic spending cuts, known as the sequester.
 
“Our message will remain clear,” Boehner said. “Until the president agrees to better cuts and reforms that help grow the economy and put us on path to a balanced budget, his sequester — the sequester he himself proposed, insisted on and signed into law — stays in place.”