If there is a silver lining in the 1,200-point drop and ongoing volatility in the Dow these last few days, it is its marked impact on sentiment across Capitol Hill today, namely an anxiety to avoid being blamed for another stock market rout.
*** An extension of the federal debt ceiling is likely to be included in the final terms to a budget deal being negotiated this afternoon between the Senate and House leadership. While the risk is not zero, the probabilities are nevertheless fairly high for a debt ceiling increase to be included that would extend the debt ceiling beyond at least the November mid-term elections. ***
A Likely House Initial Vote Tonight
H.R.695, drafted by House Speaker Paul Ryan and the House Republican leadership, extends the current CR to March 23 with full year of defense funding to please a solid majority of the House GOP. A few billion dollars was also tossed in for community health centers to perhaps pick off a few Democrats. A House floor vote tonight is very likely.
The House bill is unlikely to survive in the Senate, however, where a solid bloc of Senate centrist Democrats are objecting to a full year’s defense spending without an equal or near equal dollop of non-defense discretionary spending to be included as well. The stumble over the Deferred Action for Childhood Arrivals, or DACA, that had derailed the current CR with a few days of a shutdown, has already been put into a parallel bill negotiation.
Senate Majority Leader Mitch McConnell needs nine to a dozen Democratic votes to move any CR, and has been working with Senate Minority Leader Chuck Schumer for a bipartisan compromise that will bring along the needed Democratic votes in a nearly finalized two-step, two-year bipartisan agreement to increase the spending caps on both defense and non-defense spending.
The broad numbers would be folded into the short CR, with the final version of an Omnibus deal, which would include the topline spending figures for two years, reached in the weeks before the March 23 expiration of the new CR.
Indications are the Senate amended House bill is likely to see a floor vote by tomorrow night or Thursday morning, which would also include the extension of the federal debt ceiling.
And a Vote on Senate-amended Bill Thursday
Passing on the opportunity to increase the debt ceiling in the current CR would mean Congress would have to either pass a clean debt ceiling increase — considered to be almost politically impossible — or to pass the increase by attaching the increase in the ceiling to some other bill, but without the must-pass urgency of the CR.
Treasury’s “drop dead” date is generally understood to be in the first few days of March, or three weeks before the CR being negotiated would expire.
For the deal to work, Senate Democrats would need to prove their muscle to block the House demands for a full year of defense spending by threatening to vote down the defense spending bill that the House has already passed. That would clear the way for the Senate vote on the House CR bill, making its amendments that we believe will include the debt ceiling increase.
It would be then left to the House to vote again on the Senate amendments to the House-drafted CR and to either pass on Thursday or risk a shutdown and another trigger to a potential market dislocation.