Wall Street Breathes Very Temporary Sigh Of Relief After Boehner Resignation

There’s possibility of a government shutdown has decreased in the short term, analysts say. But the longer-term outlook for economic fights in D.C. remains grim.

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Wall Street analysts think John Boehner's surprise resignation means the government will be funded through December, but it may raise the chance of a confrontation over the debt ceiling later this year.

"All indications are that lawmakers will avoid a government shutdown next
week by agreeing to a clean continuing resolution funding the government into December," Compass Point analyst Isaac Boltanksy wrote in a note following news that Boehner will step down. "But it sets the stage for a broader fiscal fight encompassing the debt ceiling, government spending, and tax extender."

Chris Krueger, an analyst at Guggenheim Securities, said in a note that the possibility of a government shutdown at the beginning of October was lowered from 30% to 15%, but said that there's a higher chance of "some kind of accident that would keep Congress from raising the debt ceiling around Thanksgiving."

Krueger estimates the Treasury will hit the debt ceiling between November 15 and December 15, and that "the Tea Party will have more power and influence mapping out the House agenda and strategy." Krueger, like many Wall Street analysts who follow Washington, saw Boehner as someone who ultimately wouldn't let the government trip over its statutory spending limits. "Without Boehner, all bets are off," he wrote.

But with years of debt ceiling close calls and even a two week shutdown in October, 2013, investors and traders have assumed that eventually, everything gets hashed out and nothing too weird or awful will happen. "Markets have grown comfortable with fiscal cliffs due to the repetitive nature of the debates and the known cast of characters," Boltansky wrote.

A team of Goldman Sachs analysts wrote earlier this week that the debt limit would likely to be breached sometime in November, but that the government will have enough cash on hand to keep spending through early December. Even if the debt ceiling is eventually raised and the government doesn't, say, miss interest payments on its debt, brinksmanship can still have negative economic effects. The 2011 and 2013 debt ceiling shutdown "had discernible effects," on the economy a Congressional Research Service report said.

"The August 2011 debt limit impasse coincided with a marked decline in consumer confidence, small business optimism, and the S&P 500 stock index, and an increase in the equity market volatility index...In each case, these indicators did not return to their previous levels until several months after the debt limit was raised." The Government Accountability Office said that borrowing costs for the federal government rose slightly in 2011.

Regarding the 2013 showdown, which featured an actual government shtudown, the CRS notes that "those same indicators showed a much smaller deterioration in October 2013."

The Goldman analysts said there is some possibility that with Boehner no longer having to win over the restive House Republicans, he could now choose to bring up a vote to fund the government, as well as a debt limit extension. If he can't pass one before he leaves, however, "the prospects of a volatile debt ceiling debate this winter have increased dramatically," Boltansky wrote.