A deal between Democrats and Republicans has supposedly been reached in Washington D.C. to end the government shutdown and to end the debt ceiling expiration. While many people expect that this will prevent Treasury defaults, the reality is that many other trends are not likely to change at all in the weeks and months ahead. It is unfortunate to say that the inverse may not be true if the deal falls apart.
24/7 Wall St. has been tracking many of these and other trends before and during this last round of infighting in Washington D.C. Some trends have been rather obvious. Others have been harder to assume or predict. What we wanted to alert our readers to is what the settlement in Washington does not really change at all.
This is a quick-hit list of bullet points of what to look for in the coming weeks and months. One caveat has to be made that these set in stone issues are based upon a settlement actually going through.
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Here are ten things that will not likely be changed at all versus what you saw before the government shutdown and during the shutdown.
1) D.C. Crisis Management Will Continue
The first thing to consider is that this is not the last crisis management in Washington. It appears that this is simply kicking the can down the road a few months, and 2014 is an election year. This Congress and this President seem only able to come together when all failed efforts are shown to come with an outcome that is far worse than coming together. Washington D.C. management simply moves from one crisis to another and that will continue. The media loves this frenzy too because it keeps people interested, so you might even be led to think there is a big fight even if there is just a small argument.
2) Long Live QE!
The second consideration is that Quantitative Easing is likely to continue. Janet Yellen’s appointment as the next Chairman of the Federal Reserve is one which is aimed at continuing low interest rates and other measure. This will follow Ben Bernanke’s move of keeping the $85 billion in monthly bond purchases alive into 2014, being very dovish on interest rates ahead, and targeting unemployment. We do expect the Janet Yellen appointment to be confirmed even if it is a process. The Fed’s latest Beige Book was already suggesting weaker growth and that was before the full impact of the federal government shutdown. It is shocking to us how the Federal Reserve balance sheet is approaching $4 trillion, and we think that $4 trillion in assets will be hit in December of January. To put that in context, the Fed’s balance sheet is now larger than Germany’s GDP.
3) U.S. Credit Rating Risks Remain
The third consideration to keep in mind is that Fitch’s warning about the “full faith and credit” will remain relevant. If the debt ceiling debate is pushed out only until January or February, we are soon to be right back at the same place again. It will feel like you were sent back to Go, without collecting $200 and without a new role of the dice. Fitch’s warning was more dire once you get inside the report for the hidden meaning. Fitch may even announce very soon that they are removing the Rating Watch Negative bias, but this will come right back on the table if the infighting in January and February is a repeat of October. Will the U.S. get a downgrade? Perhaps not, but the risks to the downside are likely to remain higher than risks to the upside.