RANDY FREDERICK: Tax reform is complete and healthcare reform is off the table, but that doesn’t mean the Trump Administration has run out of things to do. Mike Townsend joins me for the January 30th Schwab Market Snapshot, to talk about some of the more urgent issues facing Congress right now.
So, Mike, after a very brief shutdown earlier this month, Congress created a short-term deal that only sets us up for another shutdown potentially at the end of next week. Will Congress finally be able to come together and craft a longer-term deal? Or will this cycle of just keeping the government open for a few weeks at a time continue?
MIKE TOWNSEND: Well, Randy, you’re right. The agreement reached after the weekend shutdown in January runs only through February 8th. But I think chances are slim for a long-term deal, so we’re going to be looking for another short-term extension of perhaps four weeks. Republicans have been pushing for a two-year budget deal that would set the spending caps not only for the rest of this fiscal year, but also for next year. And that would end the cycle of another deadline every few weeks. But no deal has been struck with the Democrats yet.
Also complicating matters is the ongoing dispute over immigration issues. The Senate Majority Leader agreed to hold a separate vote on immigration legislation soon. But some Democrats think tying the issue to the potential government shutdown gives them more leverage.
Despite all this uncertainty, shutdown odds this time I think are pretty low. I don’t think either side wants a repeat of the January shutdown, which was widely panned by voters from both parties as silly and unnecessary. So look for a short-term extension of another four weeks, perhaps to mid-March or so.
RANDY: Now, during his State of the Union Address, which is tonight, President Trump is expected to introduce a major infrastructure plan. Now, if I’m not mistaken, this is actually one of those topics that had bipartisan support prior to the election. So what are the chances that that issue will move forward this year?
MIKE: Well, you’re right that infrastructure is an issue that should attract bipartisan support, and pretty much everybody agrees on both sides of the aisle that we need to spend more on roads, and bridges, and airports, and other projects. However, we’re not optimistic about the plan’s chances in 2018 for a couple of reasons.
First, there were a lot of bad feelings engendered by the end of 2017, when the Republicans used a parliamentary maneuver to be able to pass the new tax law with a simple majority in the Senate. That meant that Democrats were really cut out of those discussions and ended up very frustrated.
Second, and perhaps more important, is the fact that the midterm elections are now only about nine months away, and Democrats think that they have a real shot at taking the majorities in both the House and the Senate. And that means they don’t have much interest or incentive to give the Republican leadership a chance for a big win on a popular issue like infrastructure spending. So, as a result, we think a bipartisan deal is a real longshot in 2018.
RANDY: Now, finally, an issue that probably hasn’t gotten enough attention lately is the debt ceiling. Now, in the past, a showdown on this issue has caused some big market moves and some major volatility spikes. Now, since the deadline is fast approaching, can you give us an update on that topic?
MIKE: Well, this is probably the issue that has the most potential impact on the markets that comes out of Washington. And the last agreement on the debt ceiling expired on December 8th, and since then, the Treasury Department has been using what it calls extraordinary measures to ensure that the United States does not default on its debts.
Now, Treasury Secretary Steven Mnuchin told Republican leaders in early January that Congress should act on the debt ceiling by February 28th, but that’s not a hard-and-fast deadline. Secretary Mnuchin will have to give Congress a formal drop-dead date of when the Treasury will run out of cash to pay its debts soon. We expect that date to fall sometime in March, and that means that there’s only a little more than a month for Congress to act.
Given that this issue is traditionally even more politically complex than the government shutdown issue, obviously, that doesn’t bode well for an agreement. And there’s really not a plan or a timetable for how Congress is going to address this issue. But as this deadline approaches, expect the markets to get more skittish. Back in 2011, we came the closest that we’ve ever come as a country to defaulting on our debts, and that uncertainty caused a double-digit pullback in the markets. So this is definitely an issue that investors want to keep an eye on in the weeks ahead.
RANDY: Yeah, I think most people probably remember that period. Let’s hope that doesn’t happen again. Mike, thanks for those great updates.
Listen, you can read more from Mike in the Insights & Ideas section on Schwab.com. And, don’t forget, you can follow me on Twitter @RandyAFrederick. We’ll be back again. Until next time, invest wisely. Own your tomorrow.