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Emac's Bottom Line

“Yes” Vote on Syria Lessens Odds of Budget Fight

By Emac's Bottom LineFOXBusiness

Goldman Sachs (NYSE:GS) and other Wall Street firms now say that a "yes" vote to strike Syria means that Congress will approve a “temporary” extension of spending authority, the GOP will not be able to shut down the government over health reform, and Congress could soften sequestration cuts.

ACG Analytics also says it “does not expect either a government shutdown or breach of the debt ceiling to occur,” but it does expect “market volatility” in mid to late October as Congress waits until the eleventh hour once again to pass a debt limit increase.

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Summer recess ends for Congress next week, and returning lawmakers will face a debt ceiling fight in late October, as well as fiscal 2014 budget deals and the next round of  sequestration spending cuts that go into effect in mid-January.

ACG says: Ultimately, our base-case anticipates the FY14 budget will maintain a top-line discretionary spending level of $967 billion once sequestration is implemented in January. Despite confrontational rhetoric over the debt limit from Republicans, GOP leadership will be left with no choice but to orchestrate a punt that effectively postpones further action until after the midterm elections in November 2014. The punt will carry some form of fig leaf that avoids appearing as though Republicans are caving to Democrats' refusal to negotiate over the debt limit.”

It also points out: “With the House only scheduled to be in session for nine days in September and a debate on military action in Syria scheduled as the first order of business, there is no time for political theatrics over the FY14 budget. Thus, the House is expected to pass a stopgap funding measure called a continuing resolution (CR) at the current $988 billion discretionary spending level by September 20th that will likely last for approximately 60 days. The Senate will approve it soon thereafter.  The Treasury Department sent Congress a letter last week warning that the debt limit is at risk of being breached in mid-October without specifying a particular deadline.”

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