Washington reaches a deal

 October 17, 2013

A deal negotiated by Senate Majority Leader Harry Reid (D-NV) and Senate Minority Leader Mitch McConnell (R-KY), passed by the House, and signed by President Obama reopens the federal government through January 15, 2014 and lifts the debt ceiling limit through approximately February 7, 2014.

The legislation includes language to allow Congress to disapprove of the next debt ceiling increase, which means lawmakers would formally vote on whether to reject a debt ceiling increase. It would also require a two-thirds majority vote to override a Presidential veto of any legislation passed that disapproves of the debt ceiling increase. This provision should help avoid another last-minute threat of a debt default come February. The bill also retains the Treasury Department’s ability to use extraordinary measures to pay the nation’s bill if Congress decides not to raise the debt ceiling by February 7.

There is only one Affordable Care Act (ACA) provision included in the deal, which is an anti-fraud measure that will require income verification for individuals receiving subsidies under ACA.

The ongoing negotiations have had little effect on the economy to date, with markets remaining relatively tranquil as investors anticipated a resolution before the U.S. breached the debt ceiling. The three-week shutdown will have an impact of -.5 to -.75% on GDP for the fourth quarter.

Regardless of any event’s short-term effects on the economy, investors should stay focused on a long-term strategy. Maintain a diversified portfolio, rebalance it regularly, keep enough cash on hand for emergencies, and don’t try to time the market. Adhering to these time-tested investment principles is likely to buffer you through challenging times.

TIAA-CREF NEWS ARCHIVE

C13234