US: Government shutdown looming – Rabobank

When the US Congress returns from recess on September 5 it faces the critical task of passing a budget in order to avoid a government shutdown and to raise the debt ceiling above the USD19.8 trn limit, explains the research team at Rabobank.

Key Quotes

“According to the Congressional Budget Office, the Treasury is on course to run out of funds during October, though Treasury Secretary Mnuchin has hinted that this could occur on September 29.  Earlier in the week Fitch warned that should the government fail to raise the debt ceiling “in a timely manner”, it would consider stripping the US of its “AAA status” – something that S&P already did back in 2011.”

“For the market there is a sense of deja-vu since the US has come close to its debt ceiling many times but, since 1979, it has always managed to avoid hitting it.  Since 1993, the ceiling has been raised no less than 20 times.  What is unusual about the current situation is the finger pointing by the President.  In tweets yesterday morning Trump specifically criticised Senate majority leader McConnell and House speaker Ryan for creating a fiscal “mess”.  This came just two days after Trump proclaimed he is willing to risk a government shutdown to secure budget funding for a wall along the US-Mexican border.”

“While the issue of the debt ceiling is yet to spark any huge concern in the markets, there was a reaction yesterday in treasury bills with an early October expiry.  That said, with the rift between the President and the GOP becoming ever deeper and given also the yawning divide between the conservatives and the moderates within the Republican Party, the market is likely to remain very sceptical about any significant fiscal policy reforms in the coming months.”