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Scrap of paper reading "GOVERNMENT SPENDING" on top of row of $100 notes

Market Insider: January 3, 2023

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U.S. Money Reserve

Jan 3, 2023

Between December 22 and 23, 2022, Congress passed a $1.7 trillion bill to provide federal funding until September 2023. The bill was passed just before a deadline to avoid a partial government shutdown, and it will increase government spending as the federal debt continues to rise.

The new bill includes budgetary increases to both defense and non-defense programs.

The bill includes $772.5 billion for non-defense discretionary programs and $858 billion in defense funding. According to a bill summary by Senator Patrick Leahy, this would be an increase in spending for both areas over the last fiscal budget.

Specific measures of the bill include $45 billion to support Ukraine, $38 billion in emergency aid funding for citizens affected by natural disasters, and nearly $39 billion for the Justice Department. In addition to funding, the bill includes laws for retirement savings, the electoral vote counting process, and banning the video app TikTok from federal devices.

Empty vintage Congress seats with microphones

The funding bill will add to already growing debts and deficits.

The monthly federal deficit was $249 billion in November 2022, $57 billion wider than the deficit in November 2021. The annual federal deficit for fiscal year 2023 is projected to widen from the 2022 annual deficit according to The Wall Street Journal.

Prior to the passing of the bill, the U.S. national debt stood at $31.3 trillion. On December 19, 2022, Fox Business estimated that the bill could add as much as $500 trillion more to the national debt. Additional spending could push the federal deficit over the current debt ceiling limit of $31.4 trillion.

Franklin portrait from $100 note superimposed over back of $100 note

A battle over the debt ceiling could impact financial markets in 2023.

At the end of the fiscal year in September 2023, Congress will need to again work on raising the debt ceiling for funding, this time with a more divided Congress than in 2022. On December 5, 2022, Goldman Sachs warned clients in a note that a fight over the debt ceiling in 2023 would spark the most uncertainty since the 2011 debt ceiling stand-off.

“Next year will provide the political and fiscal conditions for another disruptive debate, and razor-thin majorities in both chambers and elevated inflation could further increase uncertainty,” economists from Goldman wrote, adding, “It seems likely that uncertainty over the debt limit in 2023 could lead to substantial volatility in financial markets.”

Increased federal spending adds to growing federal debt, which could negatively affect markets in the future. Consumers may wish to prepare their portfolios for increased market uncertainty.

Read U.S. Money Reserve’s “Market Insider” each week for more economic insights. Nothing herein should be considered as portfolio or retirement advice as U.S. Money Reserve (“USMR”) cannot and does not offer financial advice. Clients should consult a financial advisor for specific advice. This commentary is provided by USMR for informational purposes only and is provided on an “as is” basis without any warranty of any kind, whether express or implied. Your use of the information provided in this commentary is entirely at your own risk. In no event will USMR be held liable for any indirect, special, incidental, or consequential damages arising out of the use of information contained in this commentary.

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