Weathering the Latest US Government Shutdown

The US federal government shut down overnight after the Senate failed to reach an agreement on funding government operations before the September 30 deadline. During a shutdown, “non-essential” federal agencies and programs that rely on annual discretionary appropriations must cease operations until funding is restored. Historically, shutdowns have been short-lived—averaging eight days—and have had negligible economic and market impact. As such, well-diversified investors need not take specific portfolio action in response.

Shutdowns have become a recurring feature of US fiscal politics, with this marking the 22nd since the Congressional Budget Act of 1974. While most shutdowns have been brief, the most recent and longest was the 35-day partial shutdown from December 2018 to January 2019. The duration of a shutdown is difficult to predict, typically hinging on the gap between party positions and the degree of public backlash. Unlike the 2018–19 partial shutdown, which left some agencies funded, this is a full shutdown, furloughing and/or delaying pay for a larger share of federal employees, including defense. By mid-October, active military personnel could go unpaid, increasing pressure on policymakers to resolve the standoff.

Read the rest of the publication here.