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2019 Washington outlook

Timely insights on the issues that matter most to investors.

The views expressed in these posts are those of the authors and are current only through the date stated. These views are subject to change at any time based upon market or other conditions, and Eaton Vance disclaims any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for Eaton Vance are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Eaton Vance fund. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. Past performance is no guarantee of future results.

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      By Andrew H. Friedman, Principal, The Washington Update and Jeffrey B. Bush, The Washington Update

      Washington - The new year begins as the prior year ended -- with the federal government shut down and no compromise in sight. Of course, the government will reopen at some point, likely when the average American gets tired of dealing with the lack of government services: interruptions at airports, inadequate responses to federal agency inquiries, trash piles at national monuments and parks, stories of government workers unable to pay rent or buy food. Sooner or later Washington will no longer be able to ignore the outcry.

      Beyond the government shutdown, the theme for 2019 is volatility. The new Democratic-led House is gearing up to hold aggressive "oversight" hearings, aimed at investigating the administration's policies on such topics as restricting benefits under the Affordable Care Act, Medicaid, and other "safety net" programs; deregulation of the financial services industry; and the technology sector's data security and protection capabilities. If the Mueller special counsel report raises concerns about presidential actions, expect the House to hold hearings into the president's conduct as well. Also expect the president to push back forcefully against these inquiries, bringing additional uncertainty to the process.

      Trade is another wild card in 2019. Unless Congress steps in, which the Republicans show no inclination to do, the president can set trade policy with little interference. At issue is whether his initiative will lead to more tariffs -- upsetting the market's preference for unfettered global trade -- or the execution of favorable trade treaties -- in line with the market's desires.

      Talks with China are progressing only haltingly, leaving the markets ricocheting between pessimism and optimism. Also in the mix is whether Congress approves the termination of the NAFTA treaty in favor of the new United States/Mexico/Canada (USMCA) trade deal. In the end, the administration will want some treaty signings to show the effectiveness of its tariff initiative, but it appears that will take a while.

      The news is not all bad. There are early discussions of a bipartisan effort to shore up the nation's infrastructure. The challenge with such a large spending effort is, as always, whether and how to pay for it. The Democrats are willing to take on more government debt to finance the expenditure, and the president might be willing to do so as well. Normally the Republicans in the Senate would object to an unfunded expenditure, but they have been unwilling to break with the president in virtually every other case. The additional spending would put extra strain on the deficit which -- exacerbated by tax cuts and other spending increases -- is already projected to surpass $1 trillion next year.

      We will keep you informed of these developments and others in our presentations this year.