The first federal government shutdown in five years is imminent, according to Goldman Sachs, which is alerting clients.
In a research released on Sunday night, economists at Goldman Sachs said that “the ingredients for a shutdown—a thin House majority, a disagreement over spending levels, and potential complications from various political issues—are present.”
According to Goldman Sachs, a shutdown later this year is “more likely than not” due to growing disputes over border security, money for Justice Department investigations, and help for Ukraine. Regarding the Fitch Ratings downgrade, the economists noted, “The spotlight that the recent sovereign downgrade shines on the fiscal situation adds to the risks.”
Wall Street, meanwhile, is not concerned about more unrest in Washington, DC. Government shutdowns in the past, which are much less catastrophic than the prospect of a US debt default from June, have frequently not caused investors to express anxiety.
Continuity and Growth
At the start of each preceding shutdown, the stock market was either flat or higher than it was at that time.
This is because, despite the fact that a government shutdown would have a negative impact on certain individuals, it would not significantly harm the US economy as a whole, especially when compared to the debt default that Washington narrowly avoided.
A shutdown would be considerably more doable from a macroeconomic standpoint than the debt ceiling, when Congress struck an agreement because the potential economic effect from a stalemate would have been so severe, according to Goldman Sachs experts.
During a shutdown, the government can continue paying benefits like Social Security and, critically, interest and principal on US debt. However, it also releases politicians from pressure to find a consensus on contentious issues.