While economists don’t expect big near-term shocks if federal agencies go dark, the risks grow the longer a stalemate lasts.
Although investors generally don’t like uncertainty, past shutdowns haven’t moved markets all that much. Expectations that the federal government would eventually reopen have largely kept investors from trying to trade based on headlines out of Washington.
“Other factors will move the financial markets, a government shutdown probably will not,” Gardner wrote.Federal Reserve Chairman Jerome Powell said on Sept. 20 that a government shutdown “hasn’t traditionally had much of a macroeconomic effect.” But the Fed is a data-driven institution that relies heavily on government reports to determine what to do with interest rates.
The next national jobs report, for example, is set to be published by the Bureau of Labor Statistics on Oct. 6. Without access to important metrics about the health and direction of the U.S. economy, the Fed could be flying at least partially blind ahead of its next interest rate decision in November.If Congress is unable to pass a spending bill, the government would be forced to shut down any federal agencies and programs unfunded by existing appropriations that are deemed not critical.
During the 2018-19 partial shutdown, for example, nonessential activities at the Department of Defense and the Department of Energy went on largely uninterrupted because they had been funded through a prior bill. By contrast, the 16-day full shutdown in 2013 affected all departments and agencies funded by annual appropriations.
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