It is "quite possible" that the federal government in the United States will shut down this week. However, the effect on the economy will be limited, says Mark Dowding, Chief Investment Officer at asset manager RBC BlueBay AM.
Senate Democrats have so far been unwilling to support an extension of the budget until November 21, as agreed upon in the House of Representatives. This threatens another government shutdown.
"The White House is now threatening a large-scale reduction in the number of federal employees the administration deems irrelevant to carrying out its policy agenda if a shutdown occurs. Since Democrats feel they will be held accountable for this, a last-minute compromise may still be reached."
For now, however, Senate Minority Leader Chuck Schumer is holding firm. He believes that Trump intends to make cuts in these areas regardless and believes the president is breaking the law. A prolonged shutdown could pose “modest economic risks,” but Dowding believes it is unlikely to materially impact the long-term macroeconomic outlook.
