Economy

US senators agree to a bipartisan spending spree

Cantillon: prospect of ballooning budget deficit could give market more jitters

Senate majority leader Mitch McConnell leaves the chamber on Wednesday after announcing an agreement on a two-year budget deal. Photograph: EPA

Thu Feb 8 2018 - 07:00

This week’s chaos on the markets is not the only issue weighing on the US economy.

Less than three weeks after the US government shut down for three days after Democratic senators would not support a spending Bill that did not include protection for young undocumented immigrants, the threat of another shutdown loomed large this week.

With federal funding due to run out at midnight on Thursday intense negotiations took place in the US Capitol in recent days to try to salvage a deal.

Both Houses of Congress need to back the measure. On Wednesday, the US Senate struck a bipartisan deal, agreeing to a two-year budget plan which would increase defence and domestic spending, including more funding for disaster relief and community health.

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The plan also raises the debt ceiling significantly, increasing spending by about $300 billion over two years.

But hours before the current government budget was due to expire it was by no means certain if the House of Representatives would back it.

Dreamers

While Democrats are concerned that the package does not offer anything for the so-called Dreamers, some fiscal conservatives on the Republican side are alarmed that the increase in spending will not be offset by budget cuts.

President Donald Trump has also muddied the waters saying earlier this week that he would “love to see a shutdown” if his demands to crack down on immigration were not met.

Senate Democrats are evidently confident that their concerns over immigration will be met during a forthcoming debate on a Dreamers Bill, and were happy to park the issue for the sake of keeping the government open.

But apart from the short-term implications, the two-year deal reached by senators, if backed by the House, may be a source of wider concern.

The prospect of a ballooning budget deficit in the US is one issue weighing on market sentiment this week.

It also represents an extraordinary turnaround by Senate Republicans – the party which lambasted the Obama administration for increasing deficits appears to have lost all qualms about the deficit now that they are in power.

How the market reacts will be closely watched.

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