More important, the threat of a default on the national debt has been avoided, along with the recession and financial crisis that may have accompanied a failure to raise the borrowing limit.
But while the bipartisan deal ends a period of disruption that has slowed the economy — the shutdown removed more than $20 billion in direct government spending and related economic activity — it creates new perils, setting up other economy-shaking deadlines in just a few months.
It also does almost nothing for the country’s existing economic challenges, including automatic spending cuts that are worsening the problem of high unemployment and a long-term debt challenge posed by mounting costs in health-care and retirement programs.
Under the terms of the bipartisan agreement, lawmakers in both parties will spend the next two months trying to hash out a deal that could alleviate some of these risks. But there is little optimism that effort will succeed, given that several similar bipartisan initiatives in recent years have failed over disagreements about taxes and spending.
“The U.S. economy dodged a bullet today. But the reprieve will be short,” Paul Edelstein, director of financial economics at IHS Global Insight, said Wednesday in an analysis. “Democrats and Republicans remain far apart on fiscal policy and the stage is set for another showdown in January.”
For now, the biggest failure of the agreement, analysts say, is that it keeps the government operating for only a few months, with a new need to fund agencies and raise the debt ceiling coming in the first five weeks of 2014.
As a result, economists say, consumers and businesses are likely to hold back on spending and investment during the important holiday season, knowing that a similarly economy-shaking political showdown might be right around the corner.
“If people are afraid that the government policy brinkmanship will resurface again, and with it the risk of another shutdown or worse, they’ll remain afraid to open up their checkbooks,” Standard & Poor’s U.S. chief economist Beth Ann Bovino said in an analysis. “That points to another Humbug holiday season.”
The two-week showdown has already harmed the economy — partly as a result of shuttered national parks, museums and federal agencies, slowed mortgage lending and small-business loans, and fewer dollars in the hands of federal workers.
But the indirect impact has been as large, economists say. The Federal Reserve, for instance, said Wednesday that a growing number of companies in the past month have reported “an increase in uncertainty due largely to the federal government shutdown and debt ceiling debate.”