A recent report from S&P Global highlights growing concerns over the economic implications of the ongoing US government shutdown, noting that it could dampen GDP growth and introduce greater unpredictability into monetary policy decisions. According to the agency, each week the federal government remains closed could trim economic expansion by 0.1 to 0.2 percentage points. This projection primarily reflects direct financial impacts and may understate the full extent of losses when indirect consequences are factored in.
Historical precedents suggest that some of the lost output is later recovered, particularly because federal workers typically receive back pay after shutdowns end. For example, the 13-day closure in 2013 during President Barack Obama’s second term reduced real GDP growth in the final quarter of that year by 0.3 percentage points, as estimated by the Bureau of Economic Analysis.
S&P pointed out that passing federal appropriations now requires majority support in the House and a 60-vote supermajority in the Senate, making bipartisan cooperation essential given the current political makeup of Congress. The agency clarified that this situation is distinct from the debt ceiling issue, as the July budget legislation raised the borrowing limit by $5 trillion through reconciliation, ensuring the Treasury retains sufficient authority to borrow during the current shutdown.
While the immediate macroeconomic effects remain limited, extended disruptions could amplify secondary consequences. One key concern is the potential delay in releasing critical economic indicators, which would complicate the Federal Reserve’s ability to make data-driven decisions. With the central bank emphasizing that future rate adjustments depend heavily on incoming economic data, such delays could cloud the outlook for monetary easing. S&P currently anticipates two additional 25-basis-point rate reductions before year-end, followed by a further 50-basis-point decline in 2026.
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US government shutdown adds uncertainty to economic outlook: S&P
Prolonged shutdown would add uncertainty to Fed ‘s monetary policy outlook, S&P says n nISTANBUL n nInternational credit rating agency S&P Global reported Wednesday that the government shutdown will slightly hit gross domestic product (GDP) growth in the US and will raise the uncertainty in the economy. n nS&P estimated in a report that every week the federal government stays closed, the economic growth could be reduced by 0.1-0.2 percentage points. n n”This figure accounts mainly for direct costs and hence is a conservative estimate relative to the decrease, including hard-to-estimate indirect costs,” it said in a statement. n nThe statement emphasized that this estimate was based on the effects of previous shutdowns and that lost GDP growth was often partially offset by federal employees receiving retroactive pay after the shutdown ended. n nIt noted that approval of annual federal funds depends on a simple majority in the House of Representatives and a 60-vote threshold in the Senate, and added that, given the distribution in Congress, ending the shutdown requires negotiations across party lines. n nS&P reminded that the government shutdown in 2013, which occurred during former President Barack Obama ‘s second term, lasted 13 days, and that the Bureau of Economic Analysis estimated that it directly reduced real GDP growth in the fourth quarter of that year by 0.3 percentage points. n n”It ‘s important to note that the government shutdown is unrelated to the federal debt ceiling. The US debt limit was increased by $5 trillion in the July budgetary legislation passed under reconciliation. As a result, the government won ‘t run out of borrowing capacity during the current shutdown,” it noted. n nS&P also stated that the government shutdown generally has a marginal impact on the overall economy, but noted that secondary effects could increase over time. n nThe statement emphasized that a prolonged delay in the release of key economic data due to the government shutdown would add uncertainty to the Fed ‘s monetary policy outlook. n nThe statement noted that the Fed emphasized that monetary easing is largely data-dependent. “As conditions stand, we expect two more 25-basis-point rate cuts before the end of this year and another 50-basis-point easing in 2026.”