US: Government funding bill a test, debt-ceiling looms later in the year - AmpGFX

In view of the analysts at Amplifying Global FX Capital, the White House has high ambitions for this week as it would like to pass a government funding bill that is required by 29 April to prevent a so-called government shutdown and hopes to pass new Healthcare legislation (to repeal and replace Obamacare), and Trump has said his team will announce its tax reform plans on Wednesday.

Key Quotes

“28 April is the expiration date for the current Continuing Resolution bill (passed on 9 December 2016). This extended funding from the previous continuing resolution (passed on 28 September).”

“The US Congress did not pass a full-year Appropriations bill for the current fiscal year that began 1 October.  It is running on short-term continuing resolutions.  It needs to pass another bill to keep funding government spending, presumably an Appropriations bill that will run through to October.”

“A failure to pass a new appropriations bill or roll-over into a new continuing resolution will start the government shut-down process, risking disruption of government services.”

“However, this is not as severe for markets as the other kind of government shut-down that follows hitting the debt ceiling. The debt ceiling has resulted in significant investor risk aversion; the most severe occurred in 2011.”

“The Debt limit was reintroduced on 15 March this year (after it was last suspended in 2015).  As such, the US Treasury is already restricted from issuing net new debt, and is running on so-called extraordinary measures.  Using these measures, the government is expected to be able to fund normal spending until October or November.”

“If Congress does not raise the limit by October, the market may become nervous that the USA is flirting with defaulting on its government debt.  Once its extraordinary measures run out, the government can only spend revenue that comes in, and some of that must go to interest payments to avoid a default.  So another kind of government shut-down that is more problematic for markets could ensue if Congress does not agree to raise the debt limit before then.”

“Nevertheless, the funding bill this week is an important test for the Trump administration.  A period of disruption to government services would make government appear dysfunctional and reduce confidence it can achieve meaningful reform, including tax reform and infrastructure spending promised by the Trump administration. A prolonged disruption to government spending would also directly dampen consumer and business confidence in the economy.”

“A delayed funding bill this week would also increase worry that government may not be able to smoothly navigate the debt ceiling problem that looms in October. Not only will the debt ceiling problem come to a head in October, Congress is also likely to be negotiating another funding bill to allow the government to operate from the beginning of the next fiscal year, and the debate over the Trump tax plan and long-term budget plans should be in full swing.  The combination could significantly undermine investor confidence.”