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By Richard Cowan and Thomas Ferraro
WASHINGTON (Reuters) - U.S. Senate leaders announced a deal on Wednesday to end a political crisis that partially shut down the federal government and brought the world's biggest economy close to a debt default that could have threatened global financial calamity.
The deal, however, offers only a temporary fix and does not resolve the fundamental issues of spending and deficits that divide Republicans and Democrats. It funds the government until January 15, so Americans face the possibility of another government shutdown early next year.
U.S. stocks surged, nearing an all-time high, on news of the deal, which must still be approved by vote in the Senate and the House of Representatives. But trading volumes remained low, underscoring how the political brinkmanship in Washington has unnerved Wall Street.
A stand-off between Republicans and the White House over funding the government forced the temporary lay-off of hundreds of thousands of federal workers from October 1 and created concern that crisis-driven politics was the "new normal" in Washington.
Senator John McCain, whose fellow Republicans triggered the crisis with demands that President Barack Obama's signature "Obamacare" healthcare law be defunded, said on Wednesday the deal marked the "end of an agonizing odyssey" for Americans.
"It is one of the most shameful chapters I have seen in the years I've spent in the Senate," said McCain, who had repeatedly warned Republicans not to link their demands for Obamacare changes to the debt limit or government spending bill.
House Speaker John Boehner said Republicans in the House would not block the Senate plan. Both chambers were expected to vote later in the day, clearing the way for Obama to sign it into law before Thursday, when the Treasury says it will exhaust its borrowing authority.
The deal would extend U.S. borrowing authority until February 7, although the Treasury Department would have tools to temporarily extend its borrowing capacity beyond that date if Congress failed to act early next year. The deal would fund government agencies until the middle of January.
The agreement includes some income verification procedures for those seeking subsidies under the healthcare law, but Republicans surrendered on their attempts to include other changes, including the elimination of a medical device tax.
With Republicans in the House of Representatives divided on the way forward, White House spokesman Jay Carney said "we are not putting odds on anything" when asked about a House vote on the Senate plan.
RACE AGAINST TIME
While analysts and U.S. officials say the government will still have roughly $30 billion in cash to pay many obligations for at least a few days after October 17, the financial sector may begin to seize up if the deal is not finalized in both chambers.
The planned votes signal a temporary ceasefire between Republicans and the White House in their latest no-holds-barred struggle over spending and deficits that has at times paralyzed both decision-making and basic functions of government.
The political dysfunction has worried U.S. allies and creditors such as China, the biggest foreign holder of U.S. debt, and raised questions about the impact on America's prestige. The Treasury has said it risks hurting the country's reputation as a safe haven and stable financial center.
Senate Majority Leader Harry Reid and Republican leader Mitch McConnell announced the fiscal agreement on the Senate floor, where it was expected to win swift approval after a main Republican critic of the deal, Senator Ted Cruz of Texas, said he would not use procedural moves to delay a vote.
The deal is seen as a victory for Obama, who held firm and refused to negotiate on changes to Obamacare, but a defeat for Republicans, who are suffering a backlash from the American public, according to public opinion polls.
It was unclear if Boehner's leadership position will be at risk in the fallout. But several Republican lawmakers suggested he may have strengthened his standing among the rank-and-file, who applaud him for standing with them.
"The Speaker got a standing ovation," after telling lawmakers during a closed-door meeting that he would put the Senate bill on the House floor, said Representative David Nunes of California, who had opposed the government shutdown strategy of his colleagues.
"He just said we live to fight another day and we all need to go out and vote for it," Nunes said.
The fight over Obamacare rapidly grew into a brawl over the debt ceiling, threatening a default that global financial organizations warned could throw the United States back into recession and cause a global economic disaster.
"Even though the market is moving up, this is a real historic event that is happening here so there is pause and concern," said Frank Davis, director of sales and trading at LEK Securities in New York.
"You are seeing a lack of activity because it's hard to invest in a market where you don't know what's around the corner."
The Dow Jones industrial average and the Standard & Poor's 500 Index ended the day up around 1.3 percent.
Fitch Ratings had warned on Tuesday that it could cut the U.S. sovereign credit rating from AAA, citing the political brinkmanship over raising the debt ceiling.
The deal announced on Wednesday would basically give Obama what he has demanded for months: A straight-forward debt limit hike and government funding bill.
A resolution to the crisis cannot come soon enough for many companies. American consumers have put away their wallets, at least temporarily, instead of spending on big-ticket items like cars and recreational vehicles.
"We're sort of 'crises-ed' out," said Tammy Darvish, vice president of DARCARS Automotive Group, a family-run company that owns 21 auto dealerships in the greater Washington area.
Many political pundits and Democratic Party politicians have predicted for weeks that a faction of Republicans in the House would drag out the crisis before making a last-minute deal.
(Additional reporting by Amanda Becker, Patricia Zengerle, Susan Heavey, David Lawder and Jason Lange; Writing by Claudia Parsons and Ross Colvin; Editing by Grant McCool)
Just a day before the federal government reaches its borrowing limit, Senate leaders announced Wednesday that they have struck a deal to re-open the government and avert a potentially cataclysmic default on U.S. debt payments.
The final package, unveiled by Democratic Senate Majority Leader Harry Reid and Republican Minority Leader Mitch McConnell on the Senate floor, would fund the government through Jan. 15 and raise the debt ceiling thorough Feb. 7.
The bill also would strengthen income verification requirements for those who sign up for insurance under Obamacare, and it would provide time for both parties to appoint lawmakers to a conference committee to reconcile a broad budget resolution. The panel would be led by Budget Committee heads Republican Rep. Paul Ryan of Wisconsin and Democratic Sen. Patty Murray of Washington, and it would be required to announce the result of its negotiations by Dec. 13.
“This has been a long challenging few weeks for Congress and for the country," McConnell said. “It’s my hope that today we can put some of the most urgent issues behind us."
There was concern earlier Wednesday that Sen. Ted Cruz, the Texas Republican who staged a 21-hour speech on the Senate floor to protest the federal health care law, would use a procedural tactic to block a vote on the deal. But after the announcement, Cruz told reporters that he would not move to deter the bill's progress through the chamber.
"I have no objections to the timing and the reason is simple. There's nothing to be gained from delaying this vote one day or two days," Cruz said. "The outcome will be the same. Every senator, every member of the House is gonna have to make a decision where he or she stands, but there's no benefit. I've never had any intention of delaying the timing of this vote."
The deal drew a quick, warm welcome from President Barack Obama, who "applauds" Reid and McConnell "for working together to forge this compromise" and hopes Congress will pass it "as soon as possible," spokesman Jay Carney said.
“He looks forward to Congress acting so that he can sign legislation that will reopen the government and will remove this threat from our economy," Carney told reporters at his daily briefing.
The announcement of a deal was good news for stocks: The S&P 500 index jumped more than 20 points and other market indicators showed signs of continued confidence in the federal government's ability to pay its bills on time.
With the guidelines of the deal set, congressional officials are still puzzling over the next procedural steps. While the deal was being crafted almost entirely by Senate staff, aides underlined that it is still very possible that the House would end up casting the first votes of the day.It the House did act first, it was not clear whether it would vote on the Reid-McConnell deal or on legislation that would serve as a “vessel” for a final compromise, helping to strip away potential parliamentary procedural roadblocks.
But any House vote is expected to rely heavily on the lion’s share of Democrats’ 200 votes to secure passage. Depending on the legislation, that could leave the Senate to strike the final blow to a crisis that already has rattled bond markets and left observers around the world shaking their heads at Washington’s enthusiastic dysfunction.
Washington is watching Republican House Speaker John Boehner to see how he will tackle a process that has left many tea party-affiliated GOP lawmakers unhappy. Those lawmakers precipitated the crisis by initially insisting that any vote to raise the debt ceiling be coupled to measures rolling back Obamacare. Those demands faded in the face of ironclad opposition from Senate Democrats (displaying surprising unity) and President Obama.
The Treasury Department says the U.S. government is close to running out of borrowing authority, which it says will take place at midnight Thursday into Friday.
Because the cash-strapped U.S. government needs to borrow cash to pay for existing programs, failure to raise the debt limit means that not long after Thursday the government will not be able to pay all of its bills.
That raises the prospect of a default on America’s public debt as well as on other obligations such as Social Security payments, which would send a shock wave through the fragile global economy. Independent economists have warned that the international financial system’s reliance on the American economy (and U.S. Treasury bills) mean that the global economy could face a fresh contraction, possibly a severe recession.
The Bureau of Alcohol, Tobacco, Firearms and Explosives has approved publication of a book by an agent who told Congress about the agency's failed gun smuggling sting operation "Fast and Furious."
The Justice Department said ATF on Wednesday was notifying the American Civil Liberties Union, which represents special agent John Dodson, that he may publish the book but that a few parts of will be redacted for law-enforcement reasons. The book, "The Unarmed Truth," is scheduled for publication in December by Threshold, a conservative imprint of Simon & Schuster.
It is still unclear whether Dodson will be allowed to be paid for the book. Federal law generally prohibits government workers from profiting off of outside work that is specifically based on their government job.
The Justice Department's ethics office will make a final determination on that after the partial government shutdown has ended.
WASHINGTON (AP) — Factory activity in the New York region expanded more slowly in October, a sign that the partial government shutdown may be weighing on the economy.
The Empire State manufacturing index fell to 1.5 in October from 6.3 in September, the Federal Reserve Bank of New York said Tuesday. Any reading above zero indicates expansion. Despite the decline, manufacturing in the region has grown for five straight months.
A measure of new orders rose, pointing to healthier future growth. And factories continued to add jobs, albeit at a slower pace.
The New York Fed's regional manufacturing report will receive more attention than usual this month because it's one of the few available measures of the economy during the shutdown, which is now in its third week. Government data, including the monthly employment report and retail sales figures, have been delayed.
The decline suggests that the budget showdown in Washington has hit manufacturers' confidence. The New York Fed surveys about 100 manufacturing firms in the state in the first two weeks of the month to compile its index.
The report "shows some clear strains from the fiscal debacle," said Bricklin Dwyer, an economist at BNP Paribas, in a note to clients.
But economists also pointed out that the drop could have been worse. Paul Dales, an economist at Capital Economics, said the index fell into negative territory during two previous budget battles in 2011 and 2012.
"We don't expect to see a severe slowdown in output growth as manufacturers are benefiting from the turnaround in overseas demand," Dales said.
Lawmakers were busy Tuesday trying to find a way to end the shutdown. They are also facing a Thursday deadline to raise the nation's $16.7 trillion borrowing limit. Without an increase, the U.S. government is at great risk of defaulting on its debt.
Senate leaders were said to be near a deal that would reopen the government through Jan. 15 and permit the Treasury to borrow normally until early to mid-February. House GOP leaders have yet to embrace the Senate plan and instead floated a counter proposal to their rank and file. But that was met with mixed reviews, leaving any resolution in flux.
The budget impasse has held back an economy that is already struggling to accelerate, according to the limited data that have been released. The shutdown has furloughed about 350,000 federal workers since Oct. 1 and closed down numerous agencies, including the Labor Department and NASA.
Consumer confidence has fallen sharply this month, according to some measures. Weekly unemployment applications jumped last week, in part because about 15,000 non-federal workers said they were laid off due to the shutdown.
Economists at Bank of America Merrill Lynch have cut their forecast for growth in the October-December quarter to an annual rate of 2 percent, down from 2.5 percent, because of the partial shutdown.
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