“There’s many a slip twixt cup and lip”. Shakespeare’s aphorism sums up very neatly the likelihood of a near term deal to get America’s government back to work and to raise the debt ceiling, which is officially due to expire on 17 October.
As I write, (Monday 14th), the talk is of a short-term bill which would do both, but the Republicans haven’t abandoned hopes that they can come out of all this having forced reductions in spending, (maybe even on Obamacare), and agreement to tax reform. Although they might send a so-called “clean bill” extending the debt ceiling to November 22nd to the Senate, which would be acceptable to the Senate and the President, they also want to tie agreement to re-opening the government, via a “continuing resolution” (CR), to a successful conclusion to the spending and tax negotiations. The President has said he won’t yield to threats and he’s unlikely to agree to negotiations without a “clean” CR, and Senate Democrats want to raise the debt ceiling until the end of 2014, but they insist that budget negotiations should be for another day.
Washington’s impasse can be having nothing but detrimental effects upon the real economy. Consumer sentiment is certainly taking a hit; the daily Rasmussen Survey of same has fallen off a cliff, falling to 92.8 yesterday, from 103.0 on 1st Oct. This takes us back to average readings last seen in November 2012.
As a result of the Federal shutdown the Fed is going to have scant and unreliable data to hand at best when it meets in December, having had next to nothing for the October meeting.
In addition to the new Chairman’s accession, the other change in January will be the annual rotation onto the FOMC of four new Regional Fed Presidents as voting members. Uncomfortably for the probable new Chairman, uber-dove Janet Yellen, the newcomers are of a distinctly more hawkish hue than those departing. On the other hand, one of the Governors of the Federal Reserve Board, (who are permanent FOMC voters for their full 14-year terms), Jerome H. Powell, leaves at end January, and he leans more towards hawkish judgements than dovish. The President will want to select a suitably dovish replacement, and we know the type of candidate that Yellen will propose if he consults her.