While the economy is improving, it’s now facing huge headwinds. They include the need for a Continuing Resolution, hitting the debt ceiling, Syria and its impact on oil prices, who will be the next Chairman of the Federal Reserve, the start date of tapering, fear about whether Abenomics will work in Japan, and concerns about US interest rate hikes reverberating across European peripheral nations and emerging-markets. Expect increased short-term volatility.
Tag Archives: continuing resolution
Accidental Growth
While Congress will inevitably pass a Continuing Resolution to fund the government beyond 9/30/13 when the current CR expires, a key question is at what spending level. If current funding levels are carried into FY14, as is usually the case for short term CRs (but maybe not this time), they would exceed the 2014 budget sequestration limit. This would reduce FY2014 budget cuts and boost growth. Good policy, albeit accidental.
Sequester Certainty
Given Republican unwillingness to raise taxes and Democratic insistence on it, the delayed automatic $110 billion sequester will kick-in on March 1st. This will reduce GDP growth by 0.75% and guarantees a weak first half of ’13 as the economy is already painfully digesting the two percentage-point Social Security tax hike that began 1/1/13. The good news, the Congress will pass another continuing resolution keeping the government operating through 9/30/13.
Government Goes On!
If a continuing resolution is not passed by the Congress by 3/27/13, the Obama administration will be forced to shut down activities funded by appropriations and all non-essential government operations. But this isn’t that ominous. Only 40% of federal spending relies on appropriations and two-thirds of that is considered “essential” and thus will continue even absent Congressional funding. Thus, each day the government is closed costs only about $2 billion.
Congressional Cowards
Only by pushing off all hard decisions was Congress able to prevent us from going over the fiscal cliff. Now we face Debt Ceiling Battle II which must be resolved by March, a fight over annual spending cuts of $100 billion which after being postponed now commence in March, and a government budget that expires in, yup, March! Based on what we’ve seen, the next few months will be terrifying.