Here We Go Again: Another Government Shutdown Looms
With another government shutdown likely at midnight tonight, this high-stakes drama feels all too familiar in Washington, D.C.
Libby Cantrill, Managing Director at PIMCO and Head of Public Policy, consistently provides clear insights into political developments and their market implications. Below is a summary of her latest commentary from Monday, September 29.
What is not impacted by a government shutdown?
- The Federal Reserve – Funded by fees and other revenue sources, not Congress.
- Mail Service – Operates on its own revenue.
- Medicare, Medicaid, Social Security – Classified as “mandatory” spending, outside congressional appropriations.
- Most VA Services – Including health services, funded a year in advance.
- Fannie Mae & Freddie Mac – Self-funded operations.
- Essential Services – Public safety (e.g., Air Traffic Control, TSA, federal law enforcement) and national security (e.g., active military). These employees must work but will not be paid during the shutdown.
Things that will be impacted by a government shutdown include:
- Government Data Releases – Payrolls (due Friday), CPI, JOLTS, GDP, and more.
- Government Services – NASA, the National Weather Service, national parks, federal museums, research grant processing, and some benefit programs (e.g., student loans, FHA/HUD mortgage applications).
- Federal Workforce – About 900,000 employees furloughed, directly impacting GDP. Another 650,000 “essential” workers will work without pay, which could reduce consumption.
- Economic Impact – While unpaid workers receive back pay once the government reopens, a short shutdown is unlikely to cause lasting economic damage.
Political Context
House Republicans have passed a “clean” stopgap funding bill through November 21 at current levels. Democrats, however, are pushing for a shorter extension through October 31, tied to making permanent the expanded Affordable Care Act (ACA) subsidies set to expire at year-end. If these subsidies lapse, roughly 4 million people could lose coverage by 2026. While unrelated to annual funding, Democrats see this as leverage given the looming deadline.
Historical Perspective
- 2018 Partial Shutdown – Lasted 34 days, reducing GDP by about 0.40% (≈0.01% per day).
- 2013 Full Shutdown – Lasted 16 days, cutting GDP by 0.60% (≈0.04% per day).
Closing Thoughts
Markets appear largely unfazed, likely pricing in a short shutdown of 1–2 weeks. There is precedent for last-minute deals—just as in 2023—though that episode cost then-Speaker McCarthy his job. Unfortunately, both parties seem to believe a brief shutdown could serve their political interests, even at the expense of economic stability.