Christopher Anstey
August 21, 2023

  • US federal agencies set to run out of appropriations Sept. 30
  • Goldman sees partisan impasse leading to temporary shutdown

Goldman Sachs Group Inc. sees a short-term hit to the US economy, with a subsequent rebound, in the likely event of a federal government shutdown sometime after appropriations run out Sept. 30.

“The federal government looks more likely than not to temporarily shut down later this year,” Goldman’s chief US political economist, Alec Phillips, wrote in a note to clients Sunday. That’s thanks to a lack of consensus in Congress over annual spending bills for the fiscal year that starts in October.

The partisan divide over appropriations lacks the potentially devastating consequences of the battle earlier this year to extend the debt limit, when the US was at risk of defaulting on some of its obligations. But that also “makes it more likely that Congress fails to act in time” on the spending bills, Phillips wrote.

Goldman’s economic team calculates that US gross domestic product could suffer a growth hit of 0.2 percentage point per week during a government-wide shutdown, including knock-on effects to the private sector. That loss would be made up in the quarter after the shutdown, Goldman anticipates.

“Markets have not reacted strongly to prior shutdowns,” Phillips wrote, with equities ending either flat or higher during the prolonged closures experienced in 1995-96, 2013 and 2018-19. Still, “in each instance equity prices were lower at some point in the days following the start of the shutdown than when it began.”

Fed Implications

One of the consequences could be a delay in the release of US economic indicators, Phillips noted.

For the Federal Reserve, a prolonged shutdown starting in October “would add to the arguments in favor” of holding off on an interest-rate increase at the November policy meeting. All in all, it “should have little effect on monetary policy,” Phillips wrote.

Lawmakers last month broke for an August recess without having sorted the fiscal 2024 spending bills. The House isn’t scheduled to return until Sept. 12, with a to-do list that includes passing 11 of the 12 annual appropriations bills and reconciling differences with the Senate over the course of just 12 planned work days that month.