On the brink of a deal?


October 15, 2013

The ongoing negotiations in Washington appear close to reaching fruition, as the Senate works on a deal that would provide for a short-term increase in the debt limit and a short-term spending bill to reopen the federal government.

The Treasury is expected to hit a $30 billion balance on October 17, though there is wiggle room for a few additional weeks before the debt limit is breached. Our general view is that an agreement will be reached on both the government shutdown and the debt ceiling before serious damage happens to the economy. Markets were again up slightly on Monday, indicating that investors also remain hopeful that a deal will emerge.

Assuming the shutdown continues, its impact to gross domestic product (GDP) is likely between 0.1-0.2% for last week and an additional 0.2% by the end of this week. The shutdown will likely affect the economy in similar ways as the fiscal cliff debate last year did, as things such as hiring and spending will slow until there is greater clarity from Congress. Markets could also become more volatile as the debate continues to linger or as the debate continues to unfold. A quick agreement on both the debt ceiling and the shutdown, however, could set the economy back on pre-crisis growth trajectories.