The modest bipartisan budget deal announced late yesterday, which would boost Federal spending by roughly $63bn over the next two years while at the same time reducing deficits by a cumulative $23bn over the next decade, should pass Congress soon without too much drama. While it is very small in scope, $63bn is only 0.4% of GDP, the two-year deal would provide some much-needed stability to the fiscal outlook. As such, it further increases the chances that the Federal Reserve will begin to wind down its monthly asset purchases at the FOMC meeting next week.
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