What do you expect in February, 2014, when the debt ceiling comes up again?
I think we will continue to see the can kicked down the road, and with each kick there will likely be slight progress. I don’t see how a “grand bargain” will emerge without passing a bill to eliminate the debt ceiling, and establish a bipartisan committee to look at entitlement and tax reforms, all of which will take time and compromise from both parties. I anticipate the debt ceiling debate in February to have minimal impact on the financial markets, however.
I like the term “grand bargain” as it pertains to the markets as well. Any time there is uncertainly it is likely to be followed by volatility. I don’t foresee any major issues with the debt ceiling being passed or at least postponed. Unless someone in the government really wants to go out of their way to destroy the markets. But it may provide a small pullback that will (as mentioned in the past) let off some “steam” to the current upward “locomotive” roll in the market as we experience higher highs and higher lows. This pullback would provide a “grand bargain” opportunity to purchase cheap equities.
Given that a deal couldn’t be struck in October, I don’t foresee a whole lot of success reaching a long-term deal again. There appear to be too many party line differences, therefore they are more likely to come up with another short-term patch. Given the dislocations in the more liquid markets, I don’t think it will reach the same tipping point it did last time.
J.J. Schenkelberg, CFA
I would expect continued debate with very small progress toward cutting costs. Each party will seemingly give a little, but it will be with items on the periphery. The debt ceiling will likely be pushed again.
Scott Kubie, CFA
I expect to see another compromise on a short-term extension. I expect the Republicans to ask for some short-term concessions and cave pretty quickly. The “grand bargain” negotiations will fail. I find the most interesting question to be if the sequester spending limits hold or if they are allowed to increase. The Sequester is a crude way of reducing the deficit, but it is effective.
Steve Donahoe, CFA
I don’t think there will likely be a shutdown when the next deadline rolls around. In the October 2013 episode it appears Republicans overestimated the concerns around Obamacare. I would expect to see another attempt at a ““grand bargain”” through another bi-partisan committee but we would have to get another multi-month extension to give the committee time to work.