Douglas Rissing
The path towards avoiding a federal government shutdown is getting slimmer with a pending deadline of 12:01 AM ET on Sunday. Millions of federal employees and military service members will be furloughed in the event that additional funding cannot be approved, the SEC will operate with minimal market oversight, and economic data releases will be delayed at a sensitive time for the U.S. economy. Americans who also rely on federal assistance could face service disruptions, there will be delays on small business loans and clinical trials for medical treatments, exporters won’t be able to get licenses, while a prolonged shutdown could impact air travel or other industries that rely heavily on federal workers.
Where things stand: The Senate currently has bipartisan support for a stopgap measure that would extend funding until Nov. 17, but hardline Republicans in the House have rejected it. The group wants deeper spending cuts and to tie the bill to immigration and border enforcement. The holdouts are triggering a dilemma for House Speaker Kevin McCarthy, and some have even vowed to oust him if they don’t meet their demands. Overnight, the Republican-led House passed a series of partisan bills, including a defense bill that removed funding for Ukraine, but that has little chance of getting through the Democrat-led Senate.
Credit ratings agencies are also taking notice, with Moody’s warning that a shutdown would be credit negative for the U.S. Fitch downgraded America’s credit rating following the debt ceiling drama back in the summer, while S&P was the first to downgrade U.S. government debt in 2011. While budget deadlocks are not unusual in Congress, with shutdowns occurring 21 times over the past five decades, the latest one would “demonstrate the significant constraints that intensifying political polarization puts on fiscal policymaking at a time of declining fiscal strength, driven by widening fiscal deficits and deteriorating debt affordability.”
SA commentary: “Despite potential economic consequences, the S&P 500 and sectors dependent on government funding have historically been unaffected during the duration of the shutdowns,” writes Investing Group Leader Manika Premsingh, author of Green Growth Giants. “The impact of a shutdown depends on its nature and duration, with longer shutdowns having had a notable economic impact in the recent past.”
