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With the congressional summer recess in full swing and Washington checked out until after Labor Day, our eyes turn to a jam-packed fall. Thus far, Congress has made hardly any progress on a number of must-pass measures as deadlines are rapidly approaching. These deadlines happen to coincide with the expiration of a series of pandemic-related measures, adding even more uncertainty. All of which, however, could have a sizeable and immediate impact to the economy and the markets.


Bracing for a Budget Brawl

While some progress was made on the federal budget and appropriations front by the time Congress broke for summer recess in July, headwinds are expected later this fall. The agreed-upon spending levels from the spring debt-limit talks are likely to face further scrutiny when Congress reconvenes as some members of the House will be looking for deeper cuts. And without much progress made on advancing all 12 of the appropriation bills, a compromise omnibus government-funding bill or a stopgap continuing resolution (CR) will be required by October 1 to keep the government from shutting down.

This spring’s debt-ceiling deal, the Fiscal Responsibility Act of 2023 (FRA), saw the White House and Congress agree to a discretionary spending provision with a 3.2% increase for defense ($886 billion) and flat funding for domestic non-defense programs ($703 billion) for fiscal year 2024.

Despite the budget caps in this agreement, conservatives in the House are pressuring leadership to come in well under the numbers agreed to by Speaker of the House Kevin McCarthy (R-CA) and President Joe Biden. Conversely, Senate Democrats are looking to pad those numbers to offset cuts.

Capitol Hill’s current climate is likely to stymie any progress surrounding government spending for either side, while also impeding any constructive debates on the topic. In the meantime, though, I’m expecting a CR or a series of CRs to be passed on or around September 30 to avoid a trainwreck. If there’s still no agreement by year end, the FRA includes a penalty that would reduce both defense and nondefense funding levels by 1% if appropriations bills aren’t enacted by January 1, 2024.


Reeling in the Safety Net

As the government-spending showdown ramps up in September, several safety-net programs that were initiated or expanded during the pandemic in 2020 will also be heading for the chopping block. Relief programs aimed at lessening the pandemic’s effects such as the student-loan payment pause and changes to childcare, food stamps, and Medicaid-disenrollment programs, are set to be scaled back or discontinued in the next three months.

While always intended to be temporary, the end of this relief will be felt by households and could add to inflationary pressures. In the case of student loans, the Biden administration is looking to blunt the impact of the Supreme Court’s decision to strike down its student-loan forgiveness program. With payments scheduled to resume in October, the administration revealed a new income-based repayment program called Saving on a Valuable Education—but that likely won’t take effect until 2024 and could still see some challenges.


Food Fight

The Farm Bill, one of the most consequential pieces of economic legislation, sets national policy and prices for everything from crops and food supply to biofuels and rural broadband. Despite bipartisan compromise on this vital bill in recent history, this legislation isn’t immune to the roadblocks of the current Congress. Some issues that could slow progress include crop insurance, climate-smart and sustainable practices, foreign ownership of US farmland, digital assets, and emergency and disaster assistance.

With an already crowded agenda, it’s unclear whether Congress will be able to reauthorize the bill by the September 30 deadline. US lawmakers have floated the idea of a short-term extension, however, as failure to come to an agreement would leave many agricultural programs in limbo.


Hole in the Defensive Line

Another must-pass measure up for debate is the National Defense Authorization Act (NDAA)—an annual bill that sets policy and spending levels for the Department of Defense and related agencies. The bill has historically had bipartisan support since it’s inception in the 1960s with few exceptions—enter 2023 and the 118th Congress.

While both the House and the Senate passed their respective versions of the NDAA in late July, the House passed its version largely along party lines while attaching culture-war provisions to its final measure. The Senate’s version passed with broad bipartisan support, leaving out the culture issues and agreeing to two amendments related to China. The measures are now headed for a conference committee, where negotiators from both chambers will be tasked with reconciling the two proposals and passing an overall NDAA package.

Also on our radar in the coming months is the potential for supplemental defense measures in response to the ongoing Russia-Ukraine war and in response to a handful of Senate Republicans who are claiming that the defense budget was shortchanged during the debt-ceiling fight.


Turbulence Before Landing

A bill to fund the Federal Aviation Administration (FAA) is subjected to the September 30 deadline, too. Funding for the FAA includes authorization for aviation modernization, protection for passengers, as well as authorization for airport-improvement projects. Lawmakers are at an impasse over several issues, including pilot training, but this must-pass measure could be resolved before an extension is required.


Swipe Left … or Right?

One topic gaining steam over the summer (and without a deadline to boot) is a bipartisan effort to mandate that banks with assets of $100 billion or more offer retail merchants a choice between two different networks when processing credit-card transactions. Credit cards carrying a Visa logo are currently only processed through the Visa network, while transactions on cards backed by Mastercard are only processed through the Mastercard network.

The change, which is strongly supported by the retail industry, has been long championed by Sen. Richard Durbin (D-IL), who has joined forces with Sen. Roger Marshall (R-KS). They, along with the retail industry, claim that competition will result in lower swipe fees (currently 2-3% of every transaction) for businesses, passing the savings onto the consumer. Banks argue that only the largest global retailers will benefit, personal data could be compromised, and rewards programs scaled back or eliminated. I think banks will prevail as they have in the past, but Durbin and Marshall, along with a few additional allies in the Senate, could be a game-changer.

While we forecast a harried and contentious fall, we predict most critical pieces of legislation will find a path to compromise and completion—albeit with potentially short-term interruptions and/or extensions. Ultimately, we’ll be keeping a close eye on the government spending battle, but believe an agreement will be reached either temporarily or through next September at the agreed-upon flat funding levels. That being said, we can’t rule out a government shutdown or even a year-end stalemate.


Talk to your financial professional to help make sure your portfolio is prepared for whatever happens in Washington D.C. 



The views and opinions expressed herein are those of the author, who is not affiliated with Hartford Funds. Hedgeye Potomac Research is not an affiliate or subsidiary of Hartford Funds.

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About The Author
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Senior Policy Analyst, Hedgeye Potomac Research

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