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October 16, 2013

Federal workers, financial experts still cautious

A temporary deal could lead to more worry in a few months

(Continued)

> SOUTHERN INDIANA — FINANCIAL MARKETS

The budget agreement Congress reached Wednesday cheered investors and removed the threat of a catastrophic debt default that could have triggered another recession.

Yet the temporary nature of the deal means a cloud will remain over a sluggish U.S. economy that was further slowed by the government’s partial shutdown.

Political fights over taxing and spending will persist over the next few months. The risk of another government shutdown and doubts about the government’s borrowing authority remain. Businesses and consumers may still spend and invest at the same cautious pace they have since the Great Recession officially ended more than four years ago.

The agreement, approved by the House and Senate late Wednesday, will reopen the government but only until Jan. 15. The deal would enable the United States to keep borrowing to pay its bills, but not past Feb. 7.

The stock market soared on the news. The Dow Jones industrial average jumped 206 points. Bond investors celebrated, too. They sharply drove down the yield on the one-month Treasury bill, which would have come due around the time a default could have occurred. And the yield on the 10-year Treasury, a benchmark for rates on mortgages and other loans, fell.

Jeffersonville investment adviser Jay Conner with Capital Asset Management, says markets respond almost immediately to news — whether it’s good or bad.

“Now, anything that comes between now and the president actually getting the bill to his desk, the House leaders decide to do anything differently or anything else, you’ll see market action that way,” Conner said Wednesday afternoon. “But [the deal] should be a good thing, because in general, markets don’t like a lot of unnecessary and chaotic actions. Markets like things to be steady and known.

“Anytime you introduce surprises, that’s when it starts to get a little jittery on you, and you don’t want that. So a deal will be good for the market as a whole.

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