Risk of Fall Government Shutdown: Kiplinger Economic Forecasts

As we look toward the fall, Americans should steel themselves for a congressional stalemate that could lead to a government shutdown. To help you understand what is going on and what we expect to happen in the future, our highly-experienced Kiplinger Letter team will keep you abreast of the latest developments and forecasts (Get a free issue of The Kiplinger Letter or subscribe). You'll get all the latest news first by subscribing, but we will publish many (but not all) of the forecasts a few days afterward online. Here’s the latest...

It looks increasingly unlikely Congress will pass 2024 spending bills on time. That raises the risk of a government shutdown starting Oct. 1. Lawmakers usually avoid that outcome with a stopgap measure at the last minute, buying time to approve funding for the full fiscal year. But this year, partisan rancor is extra high, so it’ll be harder in a closely divided Congress to agree on even temporary funding. 

A shutdown, if it happens, would ding GDP growth in the fourth quarter, to the tune of 0.2% of GDP for every week it lasts, as nonessential federal agencies halt work and their employees go unpaid. However, whenever the shutdown ends, federal workers are likely to get back pay, which would boost growth in early 2024.

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Congress will also trigger broad spending cuts if it can’t pass spending bills by year-end, as directed by the deal that averted breaching the federal debt ceiling. Defense spending would be especially hard-hit in that scenario. The deal averting a debt default calls for a 3% boost for the Pentagon, but that goes away and is replaced by a 1% cut if Congress fails to pass all 12 spending bills on time.

This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.

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