This Saturday (30), the United States is once again flirting with the possibility of a federal government shutdown, a situation that has almost become a tradition of administrations divided between Republicans and Democrats in the USA. However, this year, the strike would come at a delicate time for the world’s largest economy.
Federal funding for fiscal year 2023 expires at 11:59 p.m. this Saturday, but it appears unlikely that the House and Senate will agree to pass even a short-term funding plan to keep federal agencies afloat while they craft 2024 budgets.
The resistance is being led by a small group of Republican congressmen allied with former President Donald Trump. They would be unhappy with concessions to Joe Biden’s government made by the president of the House, Republican Representative for the state of California Kevin McCarthy.
In May, MacCarthy approved a bill that prevented the country from going into bankruptcy for the first time in its history. At that time, the consequences of a default on public debt would have been devastating for the US economy, even damaging the country’s international credit rating.
On the other hand, analysts agree that a government shutdown, at least immediately, would not have a major impact at this time.
The impact is never trivial
The chief economist at AXA IM, Gilles Moëc, states that situations like the current one are quite frequent in the country – in total, there have been 14 since 1980. He also said that they have not historically coincided with contractions in the Gross Domestic Product (GDP).
However, Moëc also warns that the impact is never trivial. Data from the Congressional Budget Office shows that the last shutdown, which occurred between December 2018 and January 2019, and lasted 35 days, cost the American economy 0.1% of GDP in the fourth quarter of 2018 and 0.2% in the first quarter of 2019.
The economist states that, however, these calculations are not annualized and that, therefore, the impact is greater. “In annual terms – to scale it to how US GDP growth is typically presented – the impact looks much more significant (0.4% in Q4 2018 and 0.8% in Q1 2019)” , he explained.
Unexpected consequences
So far, no one seems to have a clear idea of how long the U.S. government shutdown might last. The impasse that occurred between 2018 and 2019 was the longest in the country’s history, as, for the most part, these situations are resolved within a few days. However, if the current situation continues, it could have unexpected consequences for the US.
Among the possible impacts are, for example, the pause in the production of the country’s main economic indicators, such as inflation, GDP, unemployment. The lack of this information can make the work of the Federal Reserve
(Fed, the American central bank), which in November should decide whether or not to increase interest rates.
In a report for the OANDA group, analyst Edward Moya warned that, “given the growing risk that we will see a one- or two-week shutdown, there is an increasing possibility that the information-dependent Fed does not have enough data to seriously consider raising rates in November.”
Faced with this possibility, Wall Street felt this insecurity and closed September with the biggest accumulated losses in its S&P 500 and Nasdaq indices, while the Dow Jones, its main indicator, also closed the month with significant losses.
Additionally, if U.S. lawmakers do not agree to approve a funding plan this Saturday, most government agencies, museums and national parks will close, while 1.3 million military personnel and hundreds of thousands of public employees will no longer receive pay. their salaries.
Federal agencies have already drawn up detailed plans to establish which services should continue, such as airport screening and border patrols, and which can be paused, such as scientific research and nutritional aid to needy families.
Congressmen still seek agreement
Some lawmakers still hope that Congress will reach a deal this Saturday. Faced with this type of impasse, it is also customary to approve provisional bills to gain more time and carry out detailed negotiations for the financing of federal programs.
McCarthy said the House could seek support from Democrats to establish a deal like this that would guarantee government funding at current levels. But, if taken forward, this proposal could provoke a challenge to his leadership in the house.
The Senate is expected to hold a procedural vote at 1pm this Saturday (2pm Brasília time) to extend government funding until November 17th. The proposal has broad support from Republicans and Democrats, but obstacles in the Chamber could cause final approval to be delayed until Tuesday (October 3).
Even if the strategy is successful, both houses would have to resolve their differences before sending the final proposal to Biden for approval. This could be another obstacle, as McCarthy opposes the $6 billion in aid to Ukraine that is included in the Senate bill.
“We continue to try to find a way out of this,” MacCarthy said on Friday (29).
#government #shutdown #delicate #economic #time