The U.S. House of Representatives is set to review four conservative-backed spending bills that may lead to a government shutdown on October 1. House Speaker Kevin McCarthy aims to gain support from far-right GOP lawmakers by advancing these bills, which include restrictions on abortion access and cuts to climate initiatives. McCarthy hopes that passing a stopgap funding bill will prevent a shutdown and the subsequent suspension of government services. However, some hardline Republicans, who were dissatisfied with a previous spending agreement, have expressed reservations about supporting a temporary measure. If a government shutdown occurs, it is predicted to reduce U.S. growth by 0.15 percentage points each week and underscore the weaknesses in U.S. institutions and governance compared to other top-notch triple-A-rated countries.
Goldman Sachs analysts believe that a government shutdown would have a less severe impact on the economy compared to a debt limit issue. They estimate a reduction in U.S. growth of about 0.15 percentage points per week or 0.2 percentage points when considering the impact on the private sector. Despite the manageable macroeconomic effects, the analysts also note that the less severe consequences make it more likely for Congress to fail to act in time.
Moody’s, a credit rating agency, warned that a government shutdown would highlight the weaknesses in U.S. institutions and governance, further emphasizing the polarization in the American government. This comes shortly after Fitch downgraded the U.S. rating due to the challenges in policymaking caused by political divisions. These warnings reflect the growing concerns over the potential negative impact of a government shutdown on the U.S. economy and its reputation in international markets.