Reid-McConnell Act Averts Default

Stock markets rallied in response to an eleventh-hour agreement to end the partial US government shutdown, with the S&P 500, Dow Jones Industrial Average and Nasdaq all closing up by more than one percent on Wednesday just prior to confirmation of the deal which will fund the US government until January 15, 2014, and extend the debt ceiling to February 7. The S&P 500 rose 23 points to 1,721, the Dow Jones climbed by 206 points to close at 15,374 and the Nasdaq rose 45 points to 3,839 on Wednesday amid an upbeat mood on Wall Street.

Analysts have noted, however, that the volatility of Wall Street may make the rally short-lived. Nevertheless, the relief at a deal being reached was said to be almost palpable, particularly in light of the fact that Fitch Ratings put the US credit rating on a negative watch on Tuesday, giving some indication of how far-reaching the impact would be if the Treasury reached the Thursday deadline where its borrowing authority would have expired. Some market analysts voiced their opinion that had a deal not been reached by Thursday, Congress would still have had some room to maneuver and avoid a default on Friday.

Senators Harry Reid (D-NV) and Mitch McConnell (R-KY) announced to the US Senate that they had reached a deal to reopen the federal government as well as raise the borrowing limit of the nation. While acknowledging that the US had come to the brink of default, Reid noted that the ‘compromise’ reached will ‘provide the economy with the stability it desperately needs.’ He also referred to the deal as a ‘historic bipartisan agreement’.

Dubbed the Reid-McConnell bill, the legislation will also include an income-verification system for families and individuals who are receiving subsidies from the Affordable Care Act, aka Obamacare – a major sticking point for many parties involved in negotiations. Still critical of the ACA, McConnell noted that the current issue was to reopen the government and avoid default, while protecting the historic cuts achieved under the Budget Control Act.