Republicans say Democrats likely will gain the upper hand in negotiations when the short-term agreements are due to expire in December as lawmakers race to complete their work to go on recess. The agenda is expected to include Trump's proposed border wall with Mexico, his decision to end a program that lets young undocumented immigrants stay in the U.S., and perhaps the debt limit.

Before the final vote on the bill, H.R. 601, the Senate rejected amendments by Republican Rand Paul of Kentucky that would have required foreign aid cuts to offset the disaster assistance and by Republican Ben Sasse of Nebraska that would have dropped the debt-limit extension and stopgap spending from the disaster measure.

Yields on Treasury bills fell across the curve in advance of the Senate vote. T-bills maturing Oct. 5 extended their drop for the third straight session, falling below 1%, while December maturities pared Wednesday's rise.

The next fight over the debt limit could slip into 2018 because the Treasury Department can deploy so-called extraordinary measures to extend its ability to operate. Jefferies economists Ward McCarthy and Thomas Simons said the drop-dead date could come as early as February if tax refund outlays are “relatively high.” A Goldman Sachs research note estimated that the next debt limit increase would be needed by March.

Yet the extraordinary measures may provide only weeks, not months, of flexibility on the debt-limit date because the Treasury has already used almost all available measures during the current extension, a Democratic aide said party members were told after consulting with Treasury officials. Expected spending on storm aid could also eat into what will be available, the aide said.

Disaster Funds

The measure passed by the Senate would nearly double the total disaster funding from the $7.85 billion the House passed Wednesday in a measure that didn't include the debt-limit or stopgap government spending. The additional funding would go toward the Community Development Block Grant program to address housing needs in disaster zones.

Congress is rushing to pass Hurricane Harvey relief funds by the end of the week because the Federal Emergency Management Agency's disaster-relief fund is set to run out of money as soon as Friday as a more powerful storm, Hurricane Irma, bears down on Florida.

During an Oval Office meeting Wednesday, Trump accepted the proposal by Senate Minority Leader Chuck Schumer of New York and his House counterpart, Nancy Pelosi of California, to extend the debt limit until December instead of the 18-month suspension proposed by Republican leaders.

House Speaker Paul Ryan of Wisconsin, who was in the meeting with Trump, didn't see it coming. Hours before Trump's deal, he had told reporters that the Democratic proposal for a short-term debt limit deal would be “unworkable” and “ridiculous.”

Ryan told reporters on Thursday that Trump “thought it was in our country's best interest to have bipartisan support in a bipartisan package to deal with these ongoing hurricane disasters.”

Conservatives were fuming over the deal. Asked about the compromise, Freedom Caucus member Ted Yoho of Florida said sarcastically, “It's great to be in the majority.”

The White House tried to sell the deal as a way to “clear the decks” for a tax overhaul, as Trump's legislative director, Marc Short, put it to reporters.

Bloomberg News

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