The upcoming "massive" legislative and fiscal negotiation that will ensue among lawmakers in September will lead to market volatility as well as some new tax changes, warns political analyst Andy Friedman of the Washington Update.
In his recently released white paper, "Wake Me up When September Ends," Friedman points to the four issues that Congress must grapple with when they return from their August recess.
Congress looks to be arranging for all of the four major "forcing event" deadlines to occur around a single date — Sept. 30 — setting up what Friedman says will be a massive negotiation in the preceding month.
Lawmakers, Friedman points out, must agree on not only raising the debt ceiling, but also government funding, tax extenders and highway funding. House lawmakers did agree on May 19 to a two-month highway funding extension, but as Friedman notes, Congress will need to find a permanent source for highway funding.
Congressional borrowing authority ended on March 15, and "current estimates suggest the government will run out of money and need to borrow by around early October," Friedman says. "Failure to raise the debt limit by that time would impinge on the government's ability to pay interest on debt outstanding, leading to default on U.S. debt."
As the Sept. 30 deadline to raise the debt ceiling gets closer Congress and the administration are likely to continue to "bicker," Friedman warns, markets may get volatile.
"I have long said that a market decline over concern about Congress' impending failure to act is a buying opportunity. Congress will act — likely at the last minute — at which point the market will recover," Friedman writes.
