Deal Avoids The Worst But Delays Hard Decisions
BMI View: While a last-minute deal helped avert a first-ever US government default, we believe significant political hurdles to fiscal progress remain, and it is likely that noticeable damage has already been done to the US economy.
Sixteen days after the shutdown of the US federal government, and with the nation closing in on the October 17 debt limit threshold, Congress passed and President Barack Obama signed a bill that resolves the most recent fiscal crisis. The deal provides funding to re-open the government through January 15 and suspends the debt ceiling through February 7, and congressional leaders will use the intervening period to negotiate on fiscal policy, including whether to allow additional sequester spending cuts to go into effect early next year. While this resolution avoids a first-ever full-blown US sovereign default and allows hundreds of thousands of furloughed federal government workers to return to the ir job s , we believe the deal merely delays decision on long-term fiscal questions, rather than resolving them, meaning that the US is in store for more uncertainty and political risk in the months ahead.
Political Ramifications Could Be Significant