Economists from notable institutions such as EY-Parthenon, Goldman Sachs, KPMG, and Wall Street are scrutinizing the potential implications of a federal government shutdown on the U.S. economy, as of Wednesday. The thorough economic analysis includes perspectives from both the Biden and Trump administrations, assessments from the Congressional Budget Office (CBO), Conference Board’s consumer confidence data, insights from Michael Linden of the Washington Center for Equitable Growth, Federal Reserve policy decisions, and the impact on Treasury bonds yields.
While there is a general consensus that brief shutdowns may not significantly affect growth or lead to a recession, concerns are mounting over prolonged ones. A longer shutdown could potentially hamper economic progress and influence President Biden’s re-election odds. Gregory Daco of EY-Parthenon and Diane Swonk from KPMG are among those closely monitoring the situation.
Several complicating factors are adding to the uncertainty. These include high-interest rates, which could strain borrowers and dampen investment. Another concern is the resumption of federal student loan payments, which could further burden households and potentially reduce consumer spending.
The potential for strikes by United Automobile Workers also looms large. Such labor unrest could disrupt production in key industries and exacerbate economic challenges. Actions by House Republicans are being watched closely as they could play a pivotal role in the unfolding situation.
The economists’ comprehensive examination underscores the complexity of predicting the impact of a government shutdown on an economy still grappling with various challenges. As such, market participants will likely keep a close eye on developments in Washington in the coming days and weeks.
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