As we edge closer to the fabled ‘x-date’ (the day when the US federal government runs out of money), the political elite is scrambling to find a solution. Here’s our analysis of the political and financial outlook.

Yesterday, President Biden hosted a “big four” meeting with the Capitol leadership. Judging from the always very memeable Mitch McConnell’s look, the outcome of the meeting might have been quite meager, however…

The political outlook

On a more serious note, the meeting of the “big four” is mostly a front for the increased talks between staff on the Hill and lobbyists on K Street. Negotiations and real talks are ongoing, and we should expect some sort of framework for a deal to start forming within the next weeks. But when x-date hits, it’s not so much a question of the four gentlemen in the picture agreeing – it’s what McConnell and especially Kevin McCarthy can sell to his pack of wild dogs in the House of Representatives.

The Republicans hold a meager majority, which can by no means be relied on to vote through whatever deal McConnell and McCarthy can run away from the Oval Office with. Instead, McCarthy will be left with two options – work across the aisle to get Democratic votes behind the deal or get down and dirty with the MAGA wing of his own party to get almost all Republican Representatives to vote “yea”. To work across the aisle on a matter so close to Republican hearts would be a death sentence for lots of Republican establishment politicians who might face tough populist primary opponents in the upcoming election cycle. That’s why the logic could end up somewhat reversed here – a small Republican majority puts even more power in the hands of the MAGA crowd.

Either way – the political establishment will of course reach some kind of solution when we hit x-date, but likely not until a partial shut-down is implemented forcing politicians to act.

What will that solution mean for USD liquidity and markets? I’ll hand the baton to Andreas Steno:

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