Nudging the deadline

October 16, 2013

Negotiations in Washington continue, leaving investors and other observers wondering if the U.S. government will come right down to the wire on the deadline to raise the debt ceiling. House Republicans canceled a scheduled vote on a proposed deal on Tuesday evening, leaving the Senate to pick up where it left off yesterday. Senate leadership expressed confidence that they can reach an agreement and have a vote today, though whether the House will accept the Senate plan prior to October 17 remains to be seen.

In the ongoing negotiations, the government shutdown is having the most immediate effect on the U.S. economy. Assuming that the government reopens by the end of the week, we foresee an impact of -.5 to -.75% on GDP for the fourth quarter. Markets have not yet had a significant reaction to the ongoing negotiations, indicating that investors expect a resolution to the shutdown and the debt ceiling debate in advance of the October 17 deadline.

The long-term effect on the economy will be the result of the uncertainty surrounding the debt ceiling. If Congress and the President are able to reach a long-term deal that offers investors some certainty, it could unleash a wave of growth. However, a short-term deal that punts the decision about the debt ceiling to December or January is likely to inhibit growth in the fourth quarter and into 2014.

Although the barrage of news around the shutdown and the debt ceiling can be nerve-wracking, TIAA-CREF has always advocated a long-term perspective in investing. Look beyond the immediate headlines and ask yourself: Does this change my fundamental long-term outlook? The answer is likely to be No. Therefore, do not try to time the market or make major changes to allocations. Stay the course and work with your advisor to keep focused on your long-term investing goals.

TIAA-CREF NEWS ARCHIVE

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