What’s happened?

A day before the January 19th deadline Congress approved another stopgap spending measure to avoid a government shutdown. The bill received bipartisan support and gives lawmakers until early March to reach a full-year spending arrangement. However, negotiations have made little progress in recent months, and a growing number of fault lines will make compromise even more difficult.

Why does it matter?

The circumstances surrounding the stopgap bill are essentially unchanged from previous ones, narrowing the prospects for any immediate breakthrough in negotiations. The bill maintains the previous year’s spending levels, dodging the most heated debates over potential cuts. As with the temporary measures passed in September and November, it required moderate Republicans to side with Democrats, once again angering ultra-conservatives, who view this as a capitulation. The Republican speaker of the House of Representatives (the lower house), Mike Johnson, who helped to advance the bill, was already facing criticism from ultra-conservatives over his top-line spending agreement with Democrats just days earlier. That deal largely maintains the US$1.6trn spending level agreed last year between Democrats and the previous Republican House speaker, Kevin McCarthy, who was ultimately ousted by his own party. Few Republicans want a repeat of October’s drawn-out speaker replacement process. However, Mr Johnson’s position will come under increasing threat if ultra-conservatives remain unwilling to compromise.

Spending negotiations will become increasingly hobbled by talks over a foreign aid and border security package. The broad components, including aid to Ukraine and Israel, have long attracted bipartisan support. However, disagreements persist over the details, particularly over immigration, which will become even more politicised during the presidential campaign. Although Democrats have signalled greater willingness to concede to Republican demands for stronger immigration restrictions, some Republicans have expressed a willingness to kill any compromise bill so as to keep in play a key issue weighing on Democrats’ polling numbers. If this approach gains traction among Republicans, it will further complicate spending negotiations as the two debates become increasingly intertwined.

The 2024 elections will present another obstacle. The front-runner for the Republican presidential nomination, Donald Trump, has called for his party to block any compromise with Democrats, and he strongly opposes additional Ukraine aid. As Mr Trump strengthens his claim on the nomination with future primary wins, which we expect, negotiations could reach an impasse if even moderate Republican lawmakers feel pressured to align with his views.

What next?

The next shutdown deadlines are March 1st and 8th. Lawmakers will struggle to reach a full-year spending arrangement by then, making another stopgap measure likely. A breakthrough is more likely on the foreign aid and border security package, but prospects for a compromise will dwindle if talks push deeper into primaries season.

The analysis and forecasts featured in this piece can be found in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the political and economic outlook for nearly 200 countries, enabling organisations to identify prospective opportunities and potential risks.