Debt Deal Completed

Friday, October 18 2013

A sigh of relief today as finally the debt deal has been completed – for the Australian market the main concern was the small probability of a very poor outcome. Seeing as this has been avoided, the overhang on the market has been pushed back again.

Debt Limit Extended, Government Reopens

  • The agreement reached yesterday passed in the evening by a vote of 81-18 in the Senate and 285-144 in the House, and the President has signed the bill into law. The agreement provides spending authority through January 15, 2014 at the spending level that was in effect prior to the shutdown. As a result the federal government will begin to operate normally again from October 17.
  • The agreement suspends the debt limit until February 7, but the “real” debt limit deadline will probably be around mid-March.
  • The focus now shifts to the upcoming budget talks. As part of the agreement reached the House and Senate have agreed to establish a conference committee to reconcile the differences between the budget outlines that each chamber of Congress passed earlier this year. This may result in renewed fiscal headlines ahead of the deadline in early December, but since there is no consequence for failing to reach agreement by that target date, we expect little risk to public or market sentiment around the mid-December deadline. The next meaningful deadline would then be January 15, when the extension of spending authority in the Senate deal would expire, and the next round of cuts under sequestration take effect (the cut grows incrementally from $85bn in FY2013 to $109bn in FY2014).

 

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