Economics and markets

Staying the course during a potential government shutdown

January 17, 2024

Different from the debt ceiling debate

 

It’s important to understand that the current negotiations to keep the government fully operational are different from the debate last year over whether to raise the debt ceiling. In that debate, the biggest risk was a potential U.S. default if lawmakers did not raise the debt ceiling. A default occurs when the U.S. Treasury has insufficient resources to satisfy the government’s obligations. A default has never happened; if one did, it would have significant ramifications for U.S. creditworthiness and would cause spillover effects on the global financial system.

 

A shutdown occurs when the federal government suspends services deemed nonessential because a new law to fund discretionary spending programs was not approved ahead of a fiscal year deadline. When Congress cannot pass legislation funding the government for the next fiscal year, it may pass a continuing resolution that extends previous funding levels to keep the government fully operating.
 
Since 1976, the government has shut down 21 times. The performance of the S&P 500 Index during those previous shutdowns has been mixed, with the index producing positive returns 11 times and negative returns nine times. The other shutdown occurred overnight, and lawmakers reached a deal to temporarily fund the government prior to the market’s reopening.
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