Dom’s Quick Take: Government Shutdown Could Last About 10 Days

Table 1 describes government shutdowns since 1980. It shows: 

• The length of the shutdowns has increased, in line with the polarization of American politics. 

• Shutdowns have often ended with the Senate working out a bipartisan compromise that subsequently got voted in by the House, which reflects the lesser polarization of the Senate.  
• The GDP growth rates during shutdown quarters have varied widely, which reflects that government funding is one of many factors driving GDP – and usually not the most important one. Also, the government typically makes up for spending suspended during the shutdown. 
• Shutdowns do not seem to have impacted fiscal policy, with the budget deficit worsening despite shutdown length increasing. 

Based on the precedents listed in the table, I think the shutdown this time could last about a week to 10 days. 

First, the stalemate is not as bad as 2018-19 and therefore likely to last less than 35 days. In the 2018-19 stalemate, neither the president nor Congress were willing to move on funding the border wall with Mexico. The stalemate only ended with the Democrat victory in the 2018 House elections and the incoming House voting the Senate budget. 

This time, the disagreement is between hard right and mainstream Republicans and revolves around deep expenditure cuts, border safety and additional funding for Ukraine.  There is scope for moderate Republicans and Democrats to work out a compromise. 

I expect resolution through House Democrats and moderate Republicans supporting an amended version of the bipartisan Senate funding voted on 26 September. It consists of a CR up to 17 November, with $6bn in funding each for Ukraine and disaster relief and no provision for border security. It passed with 77-19 majority and has the support of Senate Minority Leader McConnell. 

Second, and simultaneously, it will take time for House Majority leader McCarthy to put the Senate budget to a floor House vote. This is because of the Republicans’ slim House majority of 221-212, which gives hard right Republicans a de facto veto. In addition, they have threatened to trigger a vote to dismiss Speaker McCarthy if he puts the Senate CR to a vote. 

Hard right Republicans do not want a CR, do not want funding for Ukraine, want measures tightening border security, and want deep expenditure cuts beyond what was agreed with President Biden during the debt ceiling stalemate. Instead, they want to pass a full budget, i.e., 12 appropriation bills, and have already started voting on four appropriations bills. 

The risk is that since the Senate has passed bipartisan government funding, House Republicans could be seen by voters as responsible for the shutdown, which could harm their electoral prospects. I therefore expect them to eventually compromise. Some Senators on both sides of the aisle are already working on an amendment to the Senate CR to provide for additional border security and make it more acceptable to House Republicans. The amended Senate CR could be voted by House democrats and mainstream House Republicans. 

However, it will take time for House Speaker McCarthy to convince his representatives, and that is why I am expecting the shutdown to last about 10 days. 

Dominique Dwor-Frecaut is a macro strategist based in Southern California. She has worked on EM and DMs at hedge funds, on the sell side, the NY Fed, the IMF, and the World Bank. She joined Macro Hive soon after its inception.

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