(Bloomberg News) Senate Minority Leader Mitch McConnell's offer to hand President Barack Obama unilateral power to raise the national debt ceiling lent some market analysts confidence that the U.S. will avert default, while Senate Majority Leader Harry Reid today praised the plan.
In a move intended to put the burden on the White House to identify future spending cuts, the Kentucky Republican offered his "last-choice" plan as an alternative to deficit-reduction talks at the White House that have yielded no apparent progress.
"It would make it much easier to raise the debt limit, which should reassure markets," Gus Faucher, director of macroeconomics at Moody's Analytics in West Chester, Pennsylvania, said in response to an e-mail today. "I haven't heard of any market reaction yet but it does imply much greater willingness to make a deal, which is a positive."
Mark Zandi, chief economist at Moody's Economy.com, said markets are comforted, at least to a degree, with McConnell's plan because it suggests that lawmakers recognize the gravity of a default.
"As soon as I heard that, I thought, well, that's positive," Zandi said in an interview.
Reid described McConnell's proposal as "thoughtful and unique," even as he called on both sides to pull together on a more ambitious deal. "This is a serious proposal, and I commend the Republican leader for coming forward," the Nevada Democrat said on the Senate floor today.
Contrary View
Still, the absence of an agreement after several days of talks among congressional leaders and the president augurs a possible breakdown, said analyst Chris Krueger.
Even with McConnell's alternative, "we are no closer to a deal, votes, or a raise in the debt ceiling with the sand continuing to run out of the hourglass," Krueger, research analyst at MF Global Washington Research Group, told clients in a note. He said odds are 40 percent that Congress won't pass a debt ceiling bill before the Treasury's stated Aug. 2 deadline for raising the borrowing limit to avert a default in U.S. bond obligations.
A newsletter to clients from FBR Capital Markets today stated "roughly, a 25 percent probability that a final deal will not be reached by the Aug. 2 deadline."