Trump and his GOP allies could roil markets this fall

REFILE CORRECTING BYLINE - President Trump reacts to the AHCA health care bill being pulled by Congressional Republicans before a vote as he appears with Secretary of Health and Human Services Tom Price (L) and Vice President Mike Pence (R) in the Oval Office of the White House in Washington, U.S., March 24, 2017. REUTERS/Carlos Barria - RTX32LZL

Traders worry about low volatility in financial markets, a possible sign of complacency as overvalued stocks hover near record highs. If they’re looking for more turbulence, they may be about to get it.

President Donald Trump and his GOP allies in charge of Congress have some important business to conduct in a short period of time once they return from a long summer recess in early September. First they have to raise the federal debt ceiling, so the U.S. government can continue to borrow the money needed to pay its bills. Then they have to pass legislation to fund the government beginning Oct. 1, the start of the new fiscal year.

This is the most basic business of government — keeping itself solvent and open for business. It ought to be pro-forma — but of course it’s not. And the Trump presidency could produce the extraordinary spectacle of one political party at war with itself, creating needless economic turmoil when it ought to be unifying in pursuit of shared goals.

Most senior Republicans say the only responsible path is to raise the debt ceiling and fund the government in short order, so they can move on to tax cuts, a longstanding Republican priority. The president himself is the wild card. Trump recently said he’d trigger a government shutdown if he can’t get $1.6 billion to start building his Mexico border wall, a project Republican appropriators aren’t eager to fund. And Trump continues to pick fights with Senate Majority Leader Mitch McConnell and other key Republicans, sowing division within his party rather than harmony. All this suggests nothing will go as smoothly in September, as it should.

Congress needs a little nudge

Investors tend to think that no matter how ugly the politics get in September, it will all work out in the end. The key question may be, at what cost? “We don’t think it will be easy, or smooth,” Morgan Stanley told clients in a recent note. “It may require some form of market pressure to get different sides to fall in line.”

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