Bank of America Merrill Lynch Global Research discusses the US deficit outlook in light of the two year debt limit suspension deal.
"Under the terms of the new 2-year budget agreement, discretionary budget authority will increase by $321bn over two years bringing the total level of permitted spend to $1.37tn and $1.375tn in FY2020 and FY2021, respectively.
The debt limit deal will ultimately have only a modest impact on our deficit outlook for the next 2 fiscal years given previous expectations for a relaxation of discretionary spending caps and lower interest payments. The passing of the debt limit has much larger implications for near term Treasury supply and USD funding conditions which should see increased bill issuance and higher GC repo rates vs IOER," BofAML notes.
"Economic assumptions: Our economic projection assumes growth will slow below potential in 2H 2019 and 1H 2020 which is somewhat weaker than CBO assumptions. Therefore, we look for revenues to be weaker than CBO projections in FY2020. In FY2021, we look for the reverse as we expect growth to rebound modestly above trend while the CBO expects trend," BofAML adds.