No. 2 – Failure To Address The Budget
Valliere marveled that few observers were discussing the failure to pass a budget, despite the presidency and both houses of Congress falling into Republican hands. Instead, when Democrats and Republicans compromised to create a continuing spending resolution earlier this year, they extended the budget until December 8. Further extensions will require a new round of compromise, he said.
“[U.S. Senator Chuck] Schumer could potentially bring a lot of mischief, I think” said Valliere, who lamented that fiscal responsibility seems to have vacated the U.S. Capitol. Few members of Congress are willing to discuss reforms to entitlements like Social Security and Medicare, which account for a growing portion of government spending.
“No one really cares,” he said. “I’m kind of shocked by the lack of concerned about this. Many in this audience have heard Erskine Bowles and Alan Simpson talk about the debt, but nobody has heeded their warnings.”
At the same time, Congress is likely to approve “unprecedented” increases to the U.S. defense budget, which will increase the annual budget deficit.
No. 3 – Turnover At The Fed
As Janet Yellen prepares to pass her chairmanship to Jerome Powell, two other key retirements will take place as Vice Chairman Stanley Fischer and New York Fed President William Dudley will also step down. The retirements place the U.S. in “uncharted waters,” says Valliere, as the three most powerful players in the Fed are leaving at a time when monetary policy is shifting away from a period of accommodation towards an era of rising interest rates and balance sheet reduction.