Congress votes to approve 2-year budget deal and end government shutdown

Published: Feb 9, 2018 9:25 a.m. ET

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Protest by Rand Paul led to short shutdown after midnight

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Fiscal policy reporter
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Sen. Rand Paul forced a delay on the budget bill, leading to the second government shutdown this year.

The House of Representatives voted early Friday for a two-year budget deal that raises both defense and domestic spending by hundreds of billions of dollars, approving a package that would also reopen the federal government after it shut down just past midnight.

The House followed the Senate in approving the sweeping bill, which would also suspend the debt limit through March 1, 2019. President Donald Trump tweeted that he signed the bill, which will reopen the government.

Sen. Rand Paul forced a delay on the Senate’s vote until past midnight Thursday, leading to the second government shutdown this year. The Kentucky Republican said: “We have Republicans hand-in-hand with Democrats offering us trillion-dollar deficits. I can’t in all honesty look the other way.” He had demanded a vote to keep budget caps in place.

J.P. Morgan economists say the deal could send the budget deficit to 6% of GDP by 2019, which they said was “unprecedented” at a time of full employment.

The Senate voted 71 to 28 to approve the measure and send it to the House, where it passed 240 to 186. Conservatives objected to how much money it spends, and Democrats, including House Minority Leader Nancy Pelosi, voted against it since it excludes a deal on immigration.

The agreement, announced Wednesday by Senate Majority Leader Mitch McConnell and Senate Minority Leader Charles Schumer, would raise overall spending caps by about $300 billion over two years. In addition to punting the next vote on the debt limit until after November’s midterm elections, the bill funnels billions of dollars to infrastructure projects and efforts to fight the opioid crisis. It also repeals a cost-control board set up by President Barack Obama’s health-care law.

Read: Here’s what’s in the budget deal struck by congressional leaders.

Also read: Racehorse owners, rum distillers get tax breaks in budget bill

The bill doesn’t address immigration issues, such as protecting the young, undocumented immigrants known as “Dreamers”. Pelosi had demanded a vote on Dreamers before supporting the deal. House Speaker Paul Ryan says he will bring to the floor an immigration bill that Trump supports.

Also read: Pelosi stages marathon 8-hour protest on House floor for Dreamers.

Budget analysts warn that the deal will herald the return of trillion-dollar deficits. When the agreement was announced Wednesday, the yield on the 10-year Treasury TMUBMUSD10Y, +0.00%   rose, as did the U.S. dollar DXY, +0.05%  .

A prolonged shutdown could have spooked already-volatile equity markets. On Friday morning, U.S. stock futures were rising after a bruising day on Wall Street Thursday.

On Thursday, the Dow Jones Industrial Average DJIA, +1.38%   lost 1,032 points, or 4.2%. Inflation concerns and rising rates are blamed for the selloff, but some analysts have noted equities were due for a pullback after gains in January and last year.

Read: Volatility shockwave has wiped $5.2 trillion from markets, sent 5 sectors into correction

The deal approved by Congress was included in a short-term funding bill keeping the government open through March 23. Lawmakers will now have six weeks to write detailed legislation with funding at the new levels.

Sen. Paul’s tactics infuriated some members of his own party. Critics pointed out the Kentucky Republican had voted to approve the $1.5 trillion tax cut that Trump signed in December.

“I understand [Paul] wants to make a point and he’s done that, but to shut down the entire federal government at midnight tonight is just grossly irresponsible,” said Sen. John Cornyn of Texas, the Senate’s No. 2 Republican.

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Robert Schroeder is a reporter for MarketWatch in Washington. Follow him on Twitter @mktwrobs.

Robert Schroeder is a reporter for MarketWatch in Washington. Follow him on Twitter @mktwrobs.

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