We’ve been here before: A shutdown of the U.S. government is looming.
A dozen spending bills are stuck in the U.S. House of Representatives, and must be passed September 30 in order to keep the federal government funded and avoid a shutdown. As the deadline nears, economists, investors, and citizens alike are preparing for the potential fallout.
Possible Side Effects
Stocks have been faring well this year. The S&P 500, the broadest measure of the U.S. stock market, is up more than 17% in the year-to-date. But a government shutdown, particularly if it is prolonged, could be a real hurdle to continue the rally.
Similarly, it could temporarily affect the U.S. economic growth, and delay key economic reports, which the Fed needs to make its policy decisions. The degree to which economic growth slows would be correlated to the length of the shutdown, and historically, government shutdowns have largely been short-lived.
A shutdown is not to be confused with the risk surrounding the debt ceiling that we talked about earlier in the year. However, federal spending accounts for roughly 25% of the nation’s GDP, so the shutdown threat is still a big deal.
The delay in passing the necessary bills to keep the government funded stems from a number of House Republicans who have refused to vote for a stop-measure gap unless government spending is cut and an impeachment inquiry into President Biden is launched. The President’s response: “The best I can tell is they want to impeach me because they want to shut down the government.”
For now, Wall Street analysts aren’t too concerned. But let’s see what the next weeks bring.
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