As negotiations continue in Washington this week, there is a risk of a partial government shutdown after midnight on Friday. However, analysts remain optimistic that an agreement will be reached between the Republican-run House and Democratic-controlled Senate to avoid closures.
The recent downgrade of the nation's credit rating by Moody's has added to the urgency. The agency expressed concerns about the federal government's ability to implement effective fiscal policies, contributing to its decision to lower the outlook from stable to negative.
House Speaker Mike Johnson, a Louisiana Republican who assumed leadership only three weeks ago, has proposed a two-step measure to prevent a shutdown. His "laddered continuing resolution" aims to extend government funding for certain agencies and programs until Jan. 19, and for others until Feb. 2.
On Monday afternoon, the House Rules Committee will review Johnson's proposal, followed by a full chamber vote on Tuesday. While the Biden White House has dismissed the plan as "an unserious proposal," Senate Majority Chuck Schumer, a Democrat from New York, has stated his commitment to finding a bipartisan solution.
Meanwhile, market analysts are closely monitoring the situation as U.S. stock indexes, including SPX, DJIA, and COMP, traded mostly higher on Monday. Investors are also anticipating key inflation data and considering the potential impact of a government shutdown.
It's worth noting that the federal government already has funding until midnight Friday due to a 45-day funding bridge passed with the help of former Speaker Kevin McCarthy and House Democrats on Sept. 30. McCarthy's actions have faced criticism from some hardline Republicans, who subsequently led an effort to remove him from his position.
Government Shutdown Unlikely, Say Analysts
Analysts Remain Cautiously Optimistic
Market analysts are offering differing perspectives on the likelihood of a government shutdown on November 18th, with some suggesting a 40% chance, while others believe it to be relatively low. Despite the uncertainties, experts agree that any potential shutdown will have minimal impact on investors.
Benjamin Salisbury at Height Capital Markets explains that the two-step laddered CR supports the idea that Republicans have a political interest in avoiding a shutdown. Furthermore, Rep. Johnson's credibility with conservative factions may allow him to broker a compromise that is also favored by Democrats.
Andrew Lokay at Beacon Policy Advisors shares a similar opinion and emphasizes that the proposed CR by Johnson would eliminate the risk of a leadership-driven omnibus bill being pushed through against a Christmas deadline. Lokay highlights that this would be a positive outcome for fiscal hawks who value transparency and input in the funding process.
A Shift in Speaker Johnson's Support
Despite still having enough support to pass a 'clean' continuing resolution to fund the government into January, analysts suggest that Speaker Johnson's popularity among his caucus may be waning. This marks a significant change from his previous honeymoon period, signaling potential challenges ahead.
Minimal Impact on Investors
Regardless of the outcome, market experts urge investors not to view the potential government shutdown as a material event. Since it does not affect the debt ceiling and any economic activity missed during a shutdown is likely to be made up after a deal is reached, the overall impact on the market is expected to be limited.
Related: What Investors Should Know About U.S. Government Shutdowns (September 2023)
The Potential Impact of a U.S. Government Shutdown on You
From ’s archives (September 2023)
During a government shutdown, essential programs like food aid may experience disruptions. This could affect individuals and families who rely on these programs for their daily sustenance. It is important to stay informed about alternative resources and support systems available within your community to mitigate any potential challenges arising from these disruptions.
Another area that may be impacted by a government shutdown is passport services. During such a situation, there may be delays or limitations in the processing of passport applications and renewals. If you have any upcoming international travel plans, it is advisable to plan accordingly and submit your passport application well in advance to avoid any potential inconveniences.
While we hope to avoid government shutdowns, it is essential to understand how they can affect us individually. By staying informed and making necessary preparations, we can navigate through these challenging times more effectively.