Funding of the federal government beyond Friday, Jan. 19, relies on lawmakers coming together and agreeing on a new budget. If a new budget is not agreed upon prior to this deadline it will mean an end to discretionary federal programs until a decision can be reached. This largely impacts government jobs and workers, including the Food and Drug Administration, the Environmental Protection Agency, the Department of Health and Human Services, and the Internal Revenue Service.
Money isn’t the only topic being discussed, however, as lawmakers commonly use budget negotiations as an opportunity to bargain for other policy changes.
Republicans are using the opportunity to push for greater border security and immigration reformations, while Democrats are hoping to get protections for “Dreamers.” “Dreamers” is a term that refers to infants who were brought into the country illegally and have spent most of their lives in America. The group had certain protections under the Obama administration, but have been targeted by policies by the Trump administration that have proved more hostile to illegal immigrants.
Some analysts are concerned that a government shutdown will destabilize markets, which have been enjoying an extended period of record growth. Other analysts are quick to point out that there is a fairly long precedent of economic shutdowns, and they do not tend to impact markets too severely. MarketWatch quoted Wells Fargo investment strategy analyst Craig Holke saying “Volatility tends to increase around these events, but they historically have had little lasting impact on markets.”
Holke originally made the comments in 2008, and there have been multiple shutdowns since. The most recent shutdown began in October 2013 as lawmakers battled over the Affordable Care Act, according to Infoplease. While this most recent shutdown didn’t greatly impact the stock market, it did cost the U.S. economy an estimated $24 B, despite having ended fairly quickly.
While the economy is in better shape this year than it was five years ago, the economy must remain strong in order to maintain a GDP high enough to make up for the tax cuts signed by President Trump on Dec. 22, 2017. The tax cut has also lead to an expectably temporary weakness in many of the country’s large banks, according to Reuters and the Associated Press.
Banks are expecting to see long-term profits rise due to the tax cuts, with current multi-billion-dollar losses seen as a one-time setback. If the federal government shuts down while banks are recovering from large losses, the stock market will almost certainly be affected, though it may have built up enough strength in recent months to remain strong in the face of that uncertainty. The timing of a government shutdown is also inopportune with the IRS being one of the government agencies on the line in the face of a shutdown and tax season just around the corner.
