Investors to Washington: You’re confusing us

28 Sep 2015 | Author: | No comments yet »

ANALYST: The chances of a shutdown plummeted — but the real disaster could come in a few months.

The Federal Reserve has kept everyone guessing when it will start raising interest rates. But analysts think the short-term gains could lead to another messy situation come December, when Congress will run up against another slew of fiscal deadlines.In short, his decision decreases the chance for an October shutdown but increases the odds of a December close, making it more difficult for the Fed to enact a long-awaited interest-rate hike. “This improves the chances that there will be no shutdown next week,” said Greg Valliere, chief political strategist at Potomac Research Group in Washington, D.C. “However, I think the chances of a really serious crisis in mid-December have gone up quite a bit.” Democrats and Republicans once again are squaring off over the future of national fiscal policy, with the GOP clamoring for spending cuts and the end of subsidies for Planned Parenthood, both of which have met stiff resistance on the other side of the aisle. With the 2013 budget showdown that closed the U.S. federal government still in mind, federal agencies and departments put out contingency plans Saturday should budget negotiations in Congress fail and funding for government services and employees freeze, according to the Washington Post.

Wall Street analysts think John Boehner’s surprise resignation means the government will be funded through December, but it may raise the chance of a confrontation over the debt ceiling later this year. week by agreeing to a clean continuing resolution funding the government into December,” Compass Point analyst Isaac Boltanksy wrote in a note following news that Boehner will step down. “But it sets the stage for a broader fiscal fight encompassing the debt ceiling, government spending, and tax extender.” Chris Krueger, an analyst at Guggenheim Securities, said in a note that the possibility of a government shutdown at the beginning of October was lowered from 30% to 15%, but said that there’s a higher chance of “some kind of accident that would keep Congress from raising the debt ceiling around Thanksgiving.” Krueger estimates the Treasury will hit the debt ceiling between November 15 and December 15, and that “the Tea Party will have more power and influence mapping out the House agenda and strategy.” Krueger, like many Wall Street analysts who follow Washington, saw Boehner as someone who ultimately wouldn’t let the government trip over its statutory spending limits. “Without Boehner, all bets are off,” he wrote. A shutdown seems unlikely after the announced resignation of House Speaker John Boehner, R-Ohio; however, a final budget deal — either short-term or long-term — has not been agreed to in the nation’s capital. But with years of debt ceiling close calls and even a two week shutdown in October, 2013, investors and traders have assumed that eventually, everything gets hashed out and nothing too weird or awful will happen. “Markets have grown comfortable with fiscal cliffs due to the repetitive nature of the debates and the known cast of characters,” Boltansky wrote. These are the blueprints that every federal office will follow if Congress does not manage to pass a stopgap spending bill to fund the government when the new fiscal year starts Thursday.

House Republican aides told Business Insider the plan was to move a “clean” funding bill next week, and conservative members of the Republican caucus left a meeting Friday morning telling reporters they would support the spending bill. Speaking on CBS’ Face the Nation, he said the House this week would pass a government funding bill now moving through the Senate, which does not meet conservatives’ demands to cut off money for the Planned Parenthood health group. We have to prepare for all three contingencies: a new budget, a temporary budget without new money or a shutdown.” Agencies are determining which workers are absolutely essential and what services to keep operating.

The 2011 and 2013 debt ceiling shutdown “had discernible effects,” on the economy a Congressional Research Service report said. “The August 2011 debt limit impasse coincided with a marked decline in consumer confidence, small business optimism, and the S&P 500 stock index, and an increase in the equity market volatility index…In each case, these indicators did not return to their previous levels until several months after the debt limit was raised.” The Government Accountability Office said that borrowing costs for the federal government rose slightly in 2011. If he can’t pass one before he leaves, however, “the prospects of a volatile debt ceiling debate this winter have increased dramatically,” Boltansky wrote.

And the Internal Revenue Service “would halt taxpayer services such as responding to taxpayer questions, including telephone customer service functions,” its plan says. His decision came days before the potential shutdown and as Congress was wrestling with funding plans, as well as amid heightened tension among Republicans in Congress as a far-right constituency continues to push back against the more moderate factions that Boehner represents. Removing one area of uncertainty could help calm a U.S. stock market in the midst of a correction in the past month as investors grapple with weakening earnings, China’s economic woes and uncertainty surrounding U.S. monetary policy.

But Park Service officials also added new language for First Amendment demonstrations on the National Mall, the memorials and Independence National Historic Park in Philadelphia, which could take place as long as the participants obtained a permit before the shutdown. Wheelchair-bound elderly veterans pushed aside barricades to tour the World War II Memorial in defiance of the shutdown in 2013, which closed all of the memorials in Washington. The four busloads of veterans, visiting from Mississippi as part of a once-in-a-lifetime Honor Flight tour, ignored police admonitions not to enter the memorial, as lawmakers and tourists cheered them on.

Since August 20, more than half of the trading sessions have seen moves of at least 1.0 percent in either direction on the benchmark S&P 500 index. “As you transition towards the later stages of negotiations, if they can’t get to a conclusion or a deal done, then absolutely the markets will take that as a third arrow in the quiver on market volatility and potential downside,” said David Lyon, global investment specialist at JP Morgan Private Bank in San Francisco. These fiscal deadlines look likely to coincide with the Federal Reserve’s mid-December meeting, when the Fed will once again convene to consider whether to raise the policy rate.

A host of Fed officials are scheduled to speak, including Federal Reserve Chair Janet Yellen, New York Fed President William Dudley, Chicago President Charles Evans and San Francisco President John Williams. Investors will also eye reports on U.S. housing and manufacturing, and the week culminates with the September Labor Department payrolls and unemployment report.

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