US hammers out a spending deal

It's going to be a very merry Christmas for US government workers, who are now guaranteed a pay-cheque for the next two years.

by Emma Haslett

‘Governing by crisis’ has been the catchphrase used in Washington DC over the past few months, as the gap between the two sides of government became increasingly wide, and Congress lurched from one catastrophe to the next, all the while bickering over who caused the problems in the first place.  

So the fact that last night, the two parties reached an $85bn (£52bn) deal that not only guards against any October-style government (/Pandacam) shutdowns, but also finances it for the next two years, is a relief to everyone involved.

Alright so, as President Obama put it, the agreement ‘doesn’t include everything I’d like – and I know many Republicans feel the same way’. (Fresh from his well-received speech at Nelson Mandela's memorial, Obama is presumably feeling pretty good - notwithstanding any complaints about that selfie). But it does include measures to reduce the federal deficit by more than $20bn (a big tick for Republicans, although realistically a drop in the $680bn ocean), and cancels half of the spending cuts, known as ‘sequestration’, planned for this fiscal year.

What’s significant is that the two sides have managed to hammer out an agreement more than a month in advance of the 15 January deadline – meaning Christmas is going to be a more relaxed affair than expected for the 700,000-odd public sector workers who spent much of October sitting at home, twiddling their thumbs and wondering whether they were going to be paid or not.

But although the two chairs of the Budget Committee, Republican Paul Ryan and Democrat Patty Murray, stood side by side to announce the deal last night, the challenge now is to have the plans approved by Congress. Not everyone’s happy: while some Republicans still think the government’s spending too much, a few Democrats are upset that the agreement leaves out measures to extend jobless benefits beyond the 26 weeks currently allowed.

Whether that’s enough to convince the likes of credit ratings agency Fitch, which threw all its toys out of the pram 24 hours before the deadline on US debt and threatened to downgrade the US’ AAA rating, that the two parties are now ready to talk like grown-ups, is the next question.

US Fed chairman Ben Bernanke presides over his last meeting of the Federal Open Market Committee (the US equivalent of the Bank of England’s Monetary Policy Committee) next week, before he hands the reins of the US central bank to Janet Yellen in January. If things in Washington are looking more stable, this is his big chance to finish what he started and kick off ‘tapering’, the process of cutting back quantitative easing.

The third quarter was better than the Fed had expected and unemployment has dropped to 7%, which Bernanke hinted was one of his criteria for when to begin tapering. The minutes of the FOMC’s October meeting hinted it might start ‘trimming the pace of purchases in coming months’.

As Alphaville points out, ‘don’t be surprised if it happens’. Equally, though, don’t be surprised if it doesn’t.

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