Wall Street is bracing for the likelihood of lengthy government shutdown — with one prominent analyst placing the odds at 90% that Republicans and Democrats won’t reach a deal before Saturday’s deadline.
Goldman Sachs’ chief economist Jan Hatzius said in a Wednesday note obtained by The Post: “A government shutdown this year has looked likely for several months, and we now think the odds have risen to 90%.”
Hatzius, who heads the bank’s global investment research, predicted the shutdown would likely last two to three weeks
“If the government shuts down on Oct. 1, a quick reopening looks unlikely as political positions become more deeply entrenched,” Hatzius warned in his note, “as neither side seems likely to make immediate concessions.”
Congress must pass legislation to keep funding the government that Democratic President Joe Biden can sign into law by midnight Saturday to avoid furloughs of hundreds of thousands of federal workers and a halt to a wide range of services.
A rebel group of House Republicans have rejected spending levels for fiscal year 2024 set in a deal Speaker Kevin McCarthy negotiated with Biden in May.
“Political pressure to reopen the government is likely to gradually build,” Hatzius wrote. “In particular, pay dates for active-duty military (Oct. 13 and Nov. 1) could be potential pressure points, as well as possible deterioration in ‘essential” operations like airport screening and border patrol as workers go unpaid.
A government shutdown, which would be the fourth in the last decade, would keep uniformed members of the military and law enforcement on the job, but their paychecks would be paused.
In addition, Department of Education and Commerce Department workers, as well as other federal staffers deemed nonessential would be furloughed.
Millions of other Americans could also be affected as the shutdown puts federal benefits like Section 8 housing vouchers, veterans benefits and disability compensation at risk.
Federal workers would receive back pay for any missed paychecks once a deal is reached thanks to the Government Employee Fair Treatment Act of 2019, which was enacted following the last government shutdown from 2018 to 2019, which lasted 34 days.
The looming shutdown and the ongoing strike by auto workers have dimmed the outlook for the rest of 2023.
“With federal government spending at almost 7% of US GDP, a shutdown will slow down GDP growth,” said Philip Marey, senior strategist at Rabobank.
Roughly 70% of small business owners said their company would be negatively affected by a government shutdown, according to a survey of 1,500-plus small business owners published by Goldman Sachs on Monday.
Of those owners, 93% believe their revenue would take a hit in some way while 67% fear they’ll lose consumer demand due to economic uncertainty, according to Goldman Sachs.
Even if a temporary deal is reached, Hatzius hinted that another government shutdown could occur before the year’s end.
“Any agreement to reopen the government after the likely shutdown is likely to expire before year-end, potentially risking another funding lapse,” he said.
On Tuesday, Senate Majority Leader Chuck Schumer (D-NY) and Minority Leader Mitch McConnell (R-Ky.) endorsed a bipartisan temporary spending patch, known in Washington parlance as a continuing resolution or CR, in an effort to prevent a shutdown.
The Senate voted 77-19 to clear a procedural hurdle to advance the measure — which would keep the government’s lights on until Nov. 17 and allow for time to negotiate a longer-term appropriations package.
However, some Republicans objected to allotting a little over $6 billion in both military and economic support for Ukraine, plus $6 billion for domestic disaster relief.
“That thing is dead over here,” Rep. Byron Donalds (R-Fla.) told reporters about the Senate deal. “You have $6.2 billion for Ukraine, they do nothing to secure our Southern border — that is just a nonstarter.”
“The Senate wants to send MORE money to Ukraine. We do not. Here’s a compromise: The House will agree to send Ukraine the gold bars and cash foreigners used to bribe Sen. [Bob] Menendez,” Rep. Matt Gaetz (R-Fla.) posted on social media Wednesday.