tl;dr
Troubling headlines from Washington have disrupted the market, with concerns about a Santa rally this year. The Federal Reserve's policy outlook for 2025, the likelihood of a government shutdown, and turmoil on Capitol Hill, including talk of scrapping the debt ceiling, have contributed to the uncer...
A Santa rally may be out of the cards this year as troubling headlines from Washington continue to pile up. The first was from the Federal Reserve, which disrupted the market party on Wall Street via a disappointing policy outlook for 2025. Next, was the likelihood of a government shutdown starting later tonight. Last, was how everything went down, with turmoil hitting Capitol Hill and talk of scrapping legislative mechanisms like the debt ceiling.
Backdrop: While Congressional leaders had reached a bipartisan deal to fund the government through March, support for the spending package disintegrated after opposition from President-elect Donald Trump and Elon Musk, who will head up the new Department of Government Efficiency. A slimmed-down bill (that included a provision to extend the debt ceiling until 2027) was quickly drawn up, but the measure failed a vote in the House on Thursday evening due to opposition from Democrats and Republican detractors.
It's not yet clear what will happen next, but a similar fight is likely to take place early next year, and Trump would rather "have this debate now" to "start with a Democratic president" and cement his control over the GOP. Millions of federal employees and military service members will be furloughed if additional funding cannot be approved. The SEC would operate with minimal market oversight (putting IPOs on ice) and economic data releases would be delayed at a sensitive time for the U.S. economy. Americans who rely on federal assistance could also face service disruptions, there will be delays on small business loans, and exporters won't be able to get licenses, while a prolonged shutdown could impact air travel before Christmas or other industries that rely heavily on federal workers.
Abolishing the debt ceiling is the "smartest thing could do. I would support that entirely," Trump told NBC News. "The Democrats have said they want to get rid of it. If they want to get rid of it, I would lead the charge. It doesn't mean anything, except psychologically."
Why does the U.S. have a debt ceiling? The U.S. first instituted a statutory debt limit with the Second Liberty Bond Act of 1917, setting the aggregate amount of debt that could be accumulated through individual categories like bonds and bills. Later in 1939, Congress instituted the first limit on total accumulated debt over all kinds of instruments. The debt limit exists to ensure the "power of the purse" stays with the legislative branch and frees up Congress from approving each individual expenditure, though almost all countries (except for Denmark) do not have a limit and debate the funding of their spending during the budgetary process.
Disclaimer: The opinions expressed by the writers at Grow My Bag are their own and do not reflect the official stance of Grow My Bag. The content provided on our site is not intended as investment advice, and Grow My Bag is not an investment advisor. We do not endorse buying or selling any cryptocurrencies or digital assets mentioned in our articles. High-risk investments in Bitcoin, cryptocurrencies, and digital assets require thorough due diligence, and all transfers and trades made are at your own risk. Grow My Bag is not responsible for any potential losses and participates in affiliate marketing.