Today’s version of my Angles weekly market report was completed before final confirmation of an agreement between negotiators having been reached on the debt ceiling.
The deal actually suspends the debt ceiling, giving the Treasury borrowing authority through January 2025 when another debt-ceiling increase/suspension would next need congressional approval. This averts any further standoffs until after the 2024 presidential election, but sets up a fresh battle right around inauguration time and I think we all remember how fired up people can be around then.
The “price” for this seems to be an effective freeze on federal spending that had been on track to grow (military spending and Social Security and Medicare programs are exempted from the freeze). There’s also the introduction of additional work rules for those seeking anti-poverty federal government assistance.
As outlined in my report, this agreement now has to make its way swiftly through Congress over the inevitable objections of hardliners who will be upset by what they view as excessive compromises made by their own team. It seems the House could vote either Tuesday or Wednesday.
While some kind of short term market relief rally is likely, it remains to be seen how much of an impact the concessions extracted by the Republicans will have on the performance of the US economy, though they definitely push things more in the direction of the unwelcome “hard landing”. It’s a matter of by how much the needle is moved.
We are not out of the woods yet.
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