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The budgetary standoff in the U.S. doesn’t look like it will abate soon, raising the likelihood of the first government shutdown since 2019, as hardline Republicans continue to hold off on agreeing to a stopgap spending bill.
Current funding for federal operations will end on October 1. If Congress fails to reach a spending deal by then, thousands of federal workers will be furloughed without pay.
House of Representatives Speaker Kevin McCarthy is expected to push an ambitious plan this week, seeking approval of four large bills that include military and homeland security funding. The aim is to convince far-right Republicans to support a stopgap spending bill, also called a continuing resolution.
However, these holdouts want deeper spending cuts than what was previously agreed upon. It included ~$1.5T in spending cuts over 10 years, but far-right Republicans want ~$120B in additional cuts for the new fiscal year alone.
“Continuing resolutions don’t solve the problem,” Republican Representative Tony Gonzalez told CBS News. “They just kick the can down the road.”
Meanwhile, U.S. President Joe Biden stood by the debt ceiling deal, saying it would’ve cut the budget deficit by $1T over the next 10 years. “Now a small group of extreme Republicans don’t want to live up to the deal.”
Wider impact: Most experts believe the government shutdown will be temporary, and its wider impact will likely be limited.
According to Morgan Stanley, the last 20 government shutdowns that occurred since 1976 “appear to have had limited impact on the economy.”
As for bond prices, “a shutdown could cause some temporary instability, although such turbulence isn’t a given,” said Monica Guerra, U.S. policy strategist, Morgan Stanley.
“This isn’t the first government shutdown, and it’s likely not the last,” said Brian Levitt, global market strategist, Invesco. “Ultimately, I’d expect the spending bills to pass without incident.”
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