Congress has a lot on its plate when it returns on Sept. 9 from its August break. On top of renewing talks on a stopgap measure to fund the government in the first few months of the fiscal year that starts Oct. 1, lawmakers must decide whether to raise the government’s $16.7 trillion debt limit, and replace about $1 trillion in the across-the-board spending cuts of sequestration.
The Obama administration is also likely to nominate a new Federal Reserve chairman this fall, as current Fed chief Ben Bernanke is set to step down when his second term ends in January.
PIMCO analysts Libby Cantrill and Josh Thimons predict in a recent commentary that unlike the last continuing resolution, which was passed in late March with little consternation, “this time congressional leaders seem to be steeling themselves for a larger fight.”
Republicans want to fund discretionary government spending at levels stipulated by the sequester cuts and spending cap levels in the Budget Control Act (the 2011 debt ceiling compromise) of $967 billion, the two analysts say, while Democrats want to effectively replace the sequester and fund the government at a higher amount of $1.058 trillion, a difference of $91 billion.
Cantrill and Thimons predict that while “bluster and posturing will abound,” ultimately a short-term deal to fund the government will be reached and a government shutdown averted.
As to raising the debt ceiling this time around, it will include lots of drama, the two PIMCO analysts say. Speaker of the House John Boehner is “pushing for a similar debt ceiling deal to the one agreed to in 2011 — effectively a one-for-one cut in federal spending for each dollar increase in the debt ceiling.” But President Barack Obama and congressional Democrats have insisted they will not negotiate over a debt ceiling increase.
Indeed, Joe Lieber of Washington Analysis says that the “real fireworks” will not occur at the end of September, when a continuing resolution needs to be passed, but rather closer to the mid-October debt limit date.
“We have long believed that Republicans will try (we think successfully) to pass a short-term CR that funds the government up to the debt limit deadline (in this case mid-October), so that both the CR and debt limit need to be addressed at the same time,” Lieber says. “Republicans want to do this for two reasons: (1) they believe they will have more leverage if the two are intertwined; and (2) President Obama and his administration continue to insist that they will not negotiate over the debt ceiling.”
If the two are intertwined, however, Lieber argues, “the administration can negotiate with Congress but say that it is with respect to the CR, and not the debt ceiling.”
The two PIMCO analysts predict, however, that a debt ceiling resolution will ultimately be reached, but will likely follow the pattern of nearly every other recent fiscal negotiation: “demagoguery and brinkmanship up front, followed by a deal cobbled together at the eleventh hour.”